Beach Wear Inc. (BWI) holds real estate for investment. Its S election is effect
ID: 2450528 • Letter: B
Question
Beach Wear Inc. (BWI) holds real estate for investment. Its S election is effective January 1 of the tax year specified for the exam. During that same tax year, it sells land for $ 915,000 less 10% costs with a basis of $300,000. Installment payments are made of $ 165,000 in the same tax year, $150,000 in the next tax year, $150,000 in year 3, $450,000 in Year 4. BWI’s income from operations was $300,000 in Year 1, a loss of $150,000 in Year 2, income of $450,000 in Year 3, and income of $600,000 in Year 4.
a. In year 2, BWI will owe no built-in gain tax under 1374(d)(2)(A).
b. In year 3, BWI will owe built-in gain tax based on $150,000 collected times 57.21% gross profit percentage times 35% or $30.035.
c. In Year 3, BWI will owe twice as much built-in gain tax as answer B or $60,070.
d. A and B.
e. A and C.
please explain why you choose this answer.
Explanation / Answer
The correct answer is option B.
Compute the gain on sale of Land Particulars Amount($) Sale consideration 915000 Less: 10% costs 91500 Net Consideration 823500 Less: basis 300000 Capital Gain 523500Related Questions
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