Analyze the tax implications of capital gains and/or losses based on the following case study. Apply the IRS codes to calculate adjusted gross income for individuals. Support your conclusions with reference to specific IRS codes and regulations.
Rob and Mary purchased as investments three identical parcels of land over a several-year period. Two years ago, they gave one parcel to their daughter, Deanna, who is now age 16. Deanna took the parcel as a gift and received the title. They have an offer from an investor who is interested in acquiring all three parcels. The buyer is able to purchase only two of the parcels now but wants to purchase the third parcel 2 or 3 years from now, when he expects to have available funds to acquire the property. Because they paid different prices for the parcels, the sales will result in different amounts of gains and losses. The sale of one parcel owned by Rob and Mary will result in a $20,000 gain, and the sale of the other parcel will result in a $28,000 loss. The sale of the parcel owned by Deanna will result in a $19,000 gain. Deanna has no other income and does not expect any significant income for several years. Rob and Mary, however, are in the 35% tax bracket. They do not have any other capital gains this year. Which property sales will result in the best tax implications for Rob, Mary, and Deanna? Why? Which two properties would you recommend that they sell this year? Based on your recommendation, if Rob and Mary's gross joint income was $373,000, calculate their AGI.
Be sure to support your work with specific citations
Their best course of action is to sell the parcel owned by Rob and Mary which will result in a $20,000 gain and the other parcel which will result in a $28,000 loss now, and sell the parcel owned by Deanna which will result in a $19,000 gain in two or three years. (The land is a capital asset in the hands of Rob, Mary and Deanna because it does not fall under any of the exclusions of 26 USC § 1221(a).)
They need to wait until Deanna has attained the age of 18 because a child must pay tax at the greater rate of a single individual or as a single individual excluding their net unearned income plus some portion of their parent’s tax (26 USC § 1). In this case, Deanna has no earned income. Furthermore, the ...
This solution discusses the income tax implications of parents selling land or gifting it to their daughter to sell. It contains numerous Internal Revenue Code references.