## Explain and calculate all of the impacts on Chester’s 2017 tax return presuming that the tugboat was purchased and placed in service on June 15, 2017

QUESTION 1

PART A TO QUESTION 1:

1. Explain and calculate all of the impacts on Chester’s 2017 tax return presuming that the tugboat was purchased and placed in service on June 15, 2017. You can assume that Chester will make a profit during 2017.  Show your calculations and explain each one.

1. Using the same information, explain and calculate all of the impacts on Chester’s 2017 tax return presuming that the tugboat is purchased and placed in service on November 12, 2017 (ignore all mid-quarter convention issues). You can assume that Chester will make a profit during 2017.  Show your calculations and explain each one.

PART B TO QUESTION 1:

Chester has spent the last several years running the tugboat operation by himself and is now tired of the late nights and bad weather.  So, he has decided to retire and sell the American Queen to a wealthy overseas investor.  The sales price is agreed as \$2,160,000 for the boat.  After some negotiations, Chester agrees to sell the equipment with the boat for a total price of \$2,260,000.  Chester had to pay a 5% commission on the total price to the broker who helped arrange the sale.  The sale occurs on November 15, 2020.

1. Calculate and explain your conclusions for the amount and character of the gain or loss on the sale assuming the boat was placed in service on June 15, 2017 (i.e. question 1 above). Show your calculations and explain each one.

1. Calculate and explain your conclusions for the amount and character of the gain or loss on the sale assuming the boat was placed in service on October 12, 2017 (i.e. question 2 above). Show your calculations and explain each one.

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