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tax- Roy decides to buy a personal residence and goes to the bank for a $150,000 loan

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Question;48. LO.4, 5 Roy decides to buy a personal residence and goes to the bank for a $150,000 loan. The bank tells him that he can borrow the funds at 4% if his father will guarantee the debt. Roy?s father, Hal, owns a $150,000 CD currently yielding 3.5%. The Federal rate is 3%. Hal agrees to either of the following:? Roy borrows from the bank with Hal?s guarantee to the bank.? Cash in the CD (with no penalty) and lend Roy the funds at 2% interest.Hal is in the 33% marginal tax bracket. Roy, whose only source of income is his salary, is in the 15% marginal tax bracket. The interest Roy pays on the mortgage will be deductible by him. Which option will maximize the family?s after-tax wealth?49. LO.2, 4 Ridge is a generous individual. During the year, he made interest-free loans to various family members when the Federal rate was 3%. What are the tax consequences of the following loans by Ridge:a. On June 30, 2013, Ridge loaned $12,000 to his cousin, Jim, to buy a used truck. Jim?s only source of income was his wages on various construction jobs during the year.b. On August 1, 2013, Ridge loaned $8,000 to his niece, Sonja. The loan was to enable her to pay her college tuition. Sonja had $1,200 interest income from CDs her parents had given her.c. On September 1, 2013, Ridge loaned $25,000 to his brother, Al, to start a business. Al had $220 of dividends and interest for the year.d. On September 30, 2013, Ridge loaned $150,000 to his mother so that she could enter a nursing home. His mother?s only income was $9,000 of Social Security benefits and $500 of interest income.50. LO.4 Indicate whether the imputed interest rules should apply in the following situations.Assume that all of the loans were made at the beginning of the tax year unless otherwise indicated.a. Mike loaned his sister $90,000 to buy a new home. Mike did not charge interest on the loan. The Federal rate was 5%. Mike?s sisterhad $900 of investment income for the year.b. Sam?s employer maintains an emergency loan fund for its employees. During the year, Sam?s wife was very ill, and he incurred unusually large medical expenses. He borrowed $8,500 from his employer?s emergency loan fund for six months. The Federal rate was 5.5%. Sam and his wife had no investment income for the year.c. Jody borrowed $25,000 from her controlled corporation for six months. She used the funds to pay her daughter?s college tuition. The corporation charged Jody 4% interest.The Federal rate was 5%. Jody had $3,500 of investment income for the year.d. Kait loaned her son, Jake, $60,000 for six months. Jake used the $60,000 to pay off college loans. The Federal rate was 5%, and Kait did not charge Jake any interest.Jake had dividend and interest income of $2,100 for the tax year.51. LO.4 Vito is the sole shareholder of Vito, Inc. He is also employed by the corporation.On June 30, 2013, Vito borrowed $8,000 from Vito, Inc., and on July 1, 2014, he borrowed an additional $10,000. Both loans were due on demand. No interest was charged on the loans, and the Federal rate was 4% for all relevant dates. Vito used the money to purchase a boat, and he had $2,500 of investment income. Determine the tax consequences to Vito and Vito, Inc., in each of the following situations:a. The loans are considered employer-employee loans.b. The loans are considered corporation-shareholder loans.52. LO.4 Pam retires after 28 years of service with her employer. She is 66 years old and has contributed $42,000 to her employer?s qualified pension fund. She elects to receive her retirement benefits as an annuity of $3,000 per month for the remainder of her life.a. Assume that Pam retires in June 2013 and collects six annuity payments this year.What is her gross income from the annuity payments in the first year?b. Assume that Pam lives 25 years after retiring. What is her gross income from the annuity payments in the twenty-fourth year?c. Assume that Pam dies after collecting 160 payments. She collected eight payments in the year of her death. What are Pam?s gross income and deductions from the annuity contract in the year of her death?

 

Paper#41287 | Written in 18-Jul-2015

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