[jeff]

Welcome to the Q2 2015 CPA Exam Study Group for REG.

“Death and Taxes” – Individual Tax for the CPA Exam

Posted by Another71 on Monday, November 24, 2014

Free NINJA: https://www.another71.com/cpa-exam-study-plan/

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[jstay]

@cpa8488 see i am for a 100 and try to memorize all that i can, but recently ive been hanging out with my friends at night and thats the whole reason i feel like im gonna fail because if im not spending time studying i feel like im wasting it away. ahhh one week and it could potentially be all over. cant believe i got a 73 last time…

[OR_CPA]

@canaanko, I am just pointing out that we added back the items to ordinary income for the S-Corp, thus retaining the character of the income items for the shareholder when passed through on the schedule K-1. The temporary tax difference for the depreciation would be reported on schedule K-1 – line 17.

I am still trying to sort out all the different distribution rules around entities, and have seen a lot of verbiage stating an S-corp is treated similar to a partnership in regards to income recognition and pass-through items to its owner/shareholders.

FAR - PASS
AUD - PASS
BEC - PASS
REG - 11/24

[Anonymous]

who's basis are you trying to figure out? a or b

[Anonymous]

ok I computed basis of A and B not sure if I'm 100% correct but I know I'm close. I didn't get basis of 69,000 for either of them though. Here's what I did

A

basis 50

FMV 70

mtg 15

CASH PAID 10 (6 for the liab. assumed + 4 in cash)

Cash received 15 (for liab. given up)

65-50-10+15= amt realized 20

Amt. recognized = 5 (lesser of amt. realized or net boot)

basis= 50-15+10+5=50

[Anonymous]

I don't know, either one i guess, I wasn't the one who asked, but I can't figure it out

[Anonymous]

B

basis 60

FMV 65

MTG. 6

cash paid 15 (for liab. assumed)

cash received 10 ( for liab. given up for 4 cash)

70-60-15+10=5 amt realized

0 amt. recognized (lesser of amt realized or net boot which is a negative 5,000 and can't recognize a loss)

basis= 60+0-10+15=65

[Anonymous]

I got 55 for A

50000 old + 6000 mortgage assumed + 4000 cash + 10000 gain = 70000 and minus 15000 mortgage given up

edit: right, the gain is 5000, then 50000 is right

[Anonymous]

I am more confused with B. I agree with 70, but OP says the answer is 69

I am also not sure if B has any gain at all. the boot received is -5000, right?

[Anonymous]

I got 70 for both basis. I don't know lol maybe someone else can add their input

[Anonymous]

B's net boot ends up being 5. Because cash paid was 15 for the liab. assumed from A. Also, cash received from A was 6 for the mtg. and 4 in cash.

[Anonymous]

no, A should have 50

the way Roger explains it:

DR new mortgage 15000

DR new plug 50000

CR old 50000

CR new mortgage 6000

CR cash 4000

CR gain 5000

[Anonymous]

B assumed 15000 mortgage and got 6000 debt relief + 4000 cash, it's 5000 negative, right?

[Anonymous]

you right about A I just updated my post from earlier.

[Anonymous]

yea the net boot would be -5000 however amt realized is 5. So it's the lesser of amt. realized or net boot. So it would be 0? because amt recognized can't be a negative number.

[Anonymous]

This looks like a lot of steps, but take it slow and I think it should make sense. Also, maybe I am wrong…I guess I worked backwards since the question was posted with the answer of $69,000.

The cancellation of debt is netted to determine A's gain. Thus, A has a gain of $9,000 (15,000 off the books – 6,000 assumption of B debt). A also pays cash of $4,000. Thus, the credits to A are: 50,000 basis of property off the books, 6,000 of B's debt onto the books, 4,000 of cash off the books, and 9,000 of gain recognized. Total credits are $69,000. Moving to the debit side…we know A got rid of $15,000 of debt, therefore, the last debit to get us to $69,000 is $54,000 of basis in new property for A.

As for B, since he doesn't get to recognize a gain (he took on more debt than he gave up, that's a loss…never recognized for like kind exchange) the calculation is simpler. His credit side is $60,000 of basis off the books, plus $15,000 of A debt assumed. Credits total $75,000. This leaves the debit side with a $6,000 of debt off the books, and a new basis “plug” of $69,000 to get us to the $75,000 balancing entry.

[Author]

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