1031 Tax Exchange Case Study

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Register to read the introduction… 1031 (a) (1)) I don’t think John and Jane would be able to utilize a 1031 tax exchange in this scenario because I don’t think the handcrafted jewelry that Jane sells would constitute their house as a business property as that is not the main purpose of the property. Personal properties are unable to take advantage of the 1031 tax exchange.

c. Does Jane have a business or hobby? Why is this
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(IRC Sec. 62 (a) (1))


f. Can Jane depreciate her vehicle or jewelry making equipment? How?

Yes, Jane can depreciate her vehicle and equipment. Since both are frequently used for business purposes she is allowed to depreciate them. She would be able to deduct the full purchase price of the vehicle and the equipment from her gross income (IRC Sec. 179). In order to qualify for the deduction the equipment/vehicle in question must be used more than 50% of the time for business purposes. The deduction is limited to the percentage of business use of the asset. (http://www.section179.org/section_179_deduction.html)

3: 3. John and Jane Smith tax issue:
a. Should John and Jane file separate tax returns or jointly?

John and Jane should definitely file a joint return. The difference in their income is so great that if they filed separately John would likely be in a higher tax bracket whereas if they filed jointly, Jane’s low income would likely bring them down to a lower tax bracket allowing them to pay a lesser tax rate on John’s income.

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