AF 450 Umass Amherst Federal Tax Realized Gain Recovery Deduction Problems

Question Description

I’m working on a accounting multi-part question and need guidance to help me understand better.

1. Jedi Inc. owns warehouse (adjusted basis of $20,000; FMV of $25,000). Jedi Inc. exchanges the its warehouse along with its business car (adjusted basis of $14,000; FMV of $15,000) with Syth Corp for new warehouse (adjusted basis of $20,000; FMV of $40,000).

(1) Determine Jedi Inc.s realized gain or loss, recognized gain or loss, and adjusted basis of the new warehouse received, respectively.

(2) In general, realized gain or loss is not recognized under like-kind exchange. Instead, recognition of realized gain or loss is postponed until the sale or exchange of the property. Discuss (a) why the realized gain or loss is not recognized, and (b) how the realized gain or loss is recognized later.

2. Khaleesi owns a tax consulting service company (DothrakiTax) as a sole proprietorship. In 2020, Khaleesis business taxable income is $1,500,000 before considering any §179 deduction, and Khaleesi purchases and places a business truck (a 5-year class property) in service for $2,700,000 on May 23rd, 2020. If Khaleesi chooses (1) §179 deduction option, and (2) declining balance (DB) cost recovery method (assume the depreciation rate for DB method is 20%), what is Khaleesis cost recovery deduction for 2020?

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