Individual Income Taxes
43rd Edition
ISBN: 9780357109731
Author: Hoffman
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Textbook Question
Chapter 5, Problem 57P
LO.4 Vic, who was experiencing financial difficulties, was able to adjust his debts as follows:
- a. Vic is an attorney. Vic owed his uncle $25,000. The uncle told Vic that if he serves as the executor of the uncle’s estate, Vic’s debt will be canceled in the uncle’s will.
- b. Vic borrowed $80,000 from First Bank. The debt was secured by land that Vic purchased for $100,000. Vic was unable to pay, and the bank foreclosed when the liability was $80,000, which was also the fair market value of the property.
- c. The Land Company, which had sold land to Vic for $80,000, reduced the mortgage on the land by $12,000.
Determine the tax consequences to Vic.
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1.Three years ago, Morris loaned Alma $5,000 (Year 1) with the understanding that the loan would be repaid in two years. Last year (Year 3) Alma filed for bankruptcy, and Morris learned that he would receive $0.10 on the dollar. In the current year, Year 4, the final settlement was made, and Morris received $300. Assuming the loan is a nonbusiness bad debt, how should Morris account for the loan?
a. $4,700 ordinary loss in the current year.
b. $3,000 ordinary loss last year and $1,700 ordinary loss in the current year
c. $4,700 short-term capital loss in the current year.
d. $3,000 short-term capital loss last year and $1,700 short-term capital loss in the current year.
Vic, who was experiencing financial difficulties, was able to adjust his debts as follows:
a. Vic is an attorney. Vic owed his uncle $25,000. The uncle told Vic that if he serves as the executor of the uncle's estate, Vic's debt will be canceled in the uncle's will.
The $25,000 debt cancellation is
Vic's gross income when the uncle dies.
b. Vic borrowed $80,000 from First Bank. The debt was secured by land that Vic purchased for $100,000. Vic was unable to pay, and the bank foreclosed when the liability was $80,000, which was also the fair market value of the property.
Vic has a $fill in the blank 01cf0405cfe7044_1
as a result of the foreclosure.
c. The Land Company, which had sold land to Vic for $80,000, reduced the mortgage on the land by $12,000.
The $12,000 reduction in the debt is
Vic's gross income and Vic must
his basis in the property.
LO.5Miller owns a personal residence with a fair market value of $195,000 and an outstanding first mortgage of $157,500, which was used entirely to acquire the residence. This year, Miller gets a home equity loan of $10,000 to purchase a new fishing boat. How much of this mortgage debt is treated as qualified residence indebtedness?
Chapter 5 Solutions
Individual Income Taxes
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