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Taylor owns a 150-unit motel that was constructed in the late 1960s. It is located on 10 acres on the main highway leading into the city. Taylor renovated the motel three years ago.
Taylor’s motel is condemned by the city, which is going to use 2 of the 10 acres for a small park. Taylor will sell the other 8 acres to a time-share developer who intends to build 400 units on the property. The developer already has secured approval from the city planning commission.
Taylor’s attorney advises him not to contest the condemnation of the 2 acres for the park. Under the eminent domain provision, the city does have the right to take “private property for public use.” However, the attorney advises Taylor to contest the condemnation of the remaining property. According to the attorney, the city does not have the right to take “private property for private use.”
The city’s position is that the condemnation will result in a substantial number of new jobs and additional tax revenue for the city.
Will Taylor be successful if he follows his attorney’s advice? Summarize your findings in a two- to three-paragraph e-mail to your instructor.
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Chapter 15 Solutions
Individual Income Taxes
- Raul Martinas, a professor of languages at Eastern University, owns a small office building adjacent to the university campus. He acquired the property 10 years ago at a total cost of $608,500-that is, $78,500 for the land and $530,000 for the building. He has just received an offer from a realty company that wants to purchase the property: however, the property has been a good source of income over the years, and so Martinas is unsure whether he should keep it or sell it. His alternatives are as follows: a Keep the property. Martinas's accountant has kept careful records of the income realized from the property over the past 10 years. These records indicate the following annual revenues and expenses: Martinas makes a $13,250 mortgage payment each year on the property The mortgage will be paid off in eight more years. He has been depredating the building by the straight-line method, assuming a salvage value of $79,500 for the building, which he still thinks is an appropriate figure. He…arrow_forward2. A warehouse owned by Martha and used in her business (i.e., to store inventory) is being condemned by the city to provide a right-of-way for a highway. The warehouse has appreciated by $180,000 based on Martha’s estimate of its fair market value. In the negotiations, the city is offering $35,000 less than what Martha believes the property is worth. Alan, a real estate broker, has offered to purchase Martha’s property for $20,000 more than the city’s offer. Martha plans to invest the proceeds she will receive in an office building she will lease to various tenants. Identify the relevant tax issues for Martha. Would the answer in part (1) change if Martha’s warehouse was property being held for investment rather than being used in her business? Explain.arrow_forwardOne of Courtney’s clients was interested in building a shopping center on a tract of land she owned in Lincoln County. Courtney inherited the property from her uncle when he died on June 6, 1999. At that time, the land was valued at $40,000. It has since been rezoned for commercial use and has a current value of $200,000. On February 10, 2019, Courtney exchanged the Lincoln parcel for a similar tract in Minnehaha County worth $190,000 and cash of $10,000. On September 2, 2019, Courtney sold a tract of land in McCook County to a farmer who owned the adjoining property. The land was inherited from the same uncle who died in 1999 and was valued at $30,000 on June 6, 1999. Under the terms of the sale, Courtney received cash of $20,000 and a note receivable to be paid in four equal installments at 1-year intervals from the date of sale. Each note calls for the payment of $25,000 plus simple interest of 8%. To the extent allowed by law, Courtney wants to defer recognition of gain for as…arrow_forward
- Carey Company owns a plot of land on which buried toxic wastes have been discovered. Since it will require several years and a considerable sum of money before the property is fully detoxified and capable of generating revenues, Carey wishes to sell the land now. It has located three potential buyers: Buyer A, who is willing to pay $1,000,000 for the land now, Buyer B, who is willing to make 20 annual payments of $110,000 each starting from today. Buyer C, who is willing to make 10 annual payments of $220,000, but the payments will begin two years from today. Assuming that the appropriate rate of interest is 9%, to whom should Carey sell the land? Why? Please show your calculations to compare the present values of the three options.arrow_forwardLittle King acquires land and an old building across the street from Northwestern State University. Little King intends to remove the old building and build a new sandwich shop on the land. What costs might the firm incur to make the land ready for its intended use?arrow_forwardZelda Company owns a plot of land on which buried toxic wastes have been discovered. Since it will require several years and a considerable sum of money before the property is fully detoxified and capable of generating revenues, Zelda wishes to sell the land now. It has located two potential buyers: Buyer A, who is willing to pay $800,000 for the land now, and Buyer B, who is willing to make 20 annual payments of $120,000 each, with the first payment to be made 5 years from today. Assuming that the appropriate rate of interest is 9%, which should Zelda sell the land?arrow_forward
- Glen Campbell owns a small office building adjacent to an airport. He acquired the property 10 years ago at a total cost of $608,000—that is, $70,000 for the land and $538,000 for the building. He has just received an offer from a realty company that wants to purchase the property; however, the property has been a good source of income over the years, and so Campbell is unsure whether he should keep it or sell it. His alternatives are as follows: a. Keep the property. Campbell's accountant has kept careful records of the income realized from the property over the past 10 years. These records indicate the following annual revenues and expenses: Campbell makes a $13,450 mortgage payment each year on the property. The mortgage will be paid off in eight more years. He has been depreciating the building by the straight-line method, assuming a salvage value of $80,700 for the building, which he still thinks is an appropriate figure. He feels sure that the building can be rented for another…arrow_forwardThe City of Prattville donated some land with a few old manufacturing buildings on it to the Laurel Corporation that was only worth $50,000. The Laurel Corporation owns the television show, Home Renovations that builds beautiful condominiums from old manufacturing buildings and then sells them to young wealthy accountants. They film in Prattville for two months investing 2 million dollars in the complex. What basis does Laurel Corporation have in the condominium complex?arrow_forwardCullumber, Inc. is considering the purchase of a warehouse directly across the street from its manufacturing plant. Cullumber currently warehouses its inventory in a public warehouse across town. Rent on the warehouse and delivering and picking up inventory cost Cullumber $50880 per year. The building will cost Cullumber $477000. Cullumber will depreciate the building for 20 years. At the end of 20 years, the building will have a $132500 salvage value. Cullumber's required rate of return is 12%. Click here to view the factor table. Using the present value tables, the building's net present value is (round to the nearest dollar) O $1017600. O $46077. O $393783. O $-83217.arrow_forward
- In early 2020, James, Inc. announced its intention to construct a manufacturing facility in the Shenandoah Valley. To persuade James, Inc. to locate the facility in Burton County, the county government contributed a six-acre tract of undeveloped county land to the corporation. The appraised FMV of the land at the date of the contribution was $280,000. Soon after accepting the contribution, James, Inc. paid $3,300 to an attorney to do a title search to make sure that it had uncontested ownership of the land. James also paid $12,900 for a survey and site map of the six acres and $1,360 for two water wells drilled on the land. a.What is the proper tax treatment of James’ $17,560 expenditure with respect to the land? b.what type of taxation should be appliedarrow_forwardThe Porter Beverage Factory owns a building for its operations. Porter uses only half of the building and is considering two options for the unused space. The Popcorn Store would like to purchase the half of the building that is not being used for $550,000. A 5% commission would have to be paid at the time of purchase. Salty Snacks would like to lease the half of the building for the next 5 years at $100,000 each year. Porter would have to continue paying $15,000 of property taxes each year and $2,000 of yearly insurance on the property, according to the proposed lease agreement. Determine the differential income or loss from the lease alternative.arrow_forwardClaude purchased raw land three years ago for $1,000,000 to develop into lots and sell to individuals planning to build their dream homes. Claude intended to treat this property as inventory, like his other development properties. Before completing the development of the property, however, he decided to contribute it to South Peak Investors LLC when it was worth $3,000,000, in exchange for a 10 percent capital and profits interest. South Peak’s strategy is to hold land for investment purposes only and then sell it later at a gain. a. If South Peak sells the property for $3,110,000 four years after Claude’s contribution, how much gain or loss is recognized, and what is its character? [Hint: See §724.] [capital gain/loss or Ordinary gain/loss] b. If South Peak sells the property for $3,110,000 five and one-half years after Claude’s contribution, how much gain or loss is recognized, and what is its character?arrow_forward
- Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENTBusiness Its Legal Ethical & Global EnvironmentAccountingISBN:9781305224414Author:JENNINGSPublisher:Cengage
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