Initial Basis LO 5 Izzy is an employee of Kosmos Kustom Kars

Initial Basis (LO. 5) Izzy is an employee of Kosmo\'s Kustom Kars, Inc. The company rebuilds classic automobiles for resale. Last year, Izzy bought a rebuilt 1956 Thunderbird for $15,000 from the company. A car like Izzy\'s Thunderbird generally sells for $28,000. On Dece ber 20 of the current year, Izzy receives an ffer of $25,000 for the car Complete the statements below regarding the tax effects of the sale between Izzy and Kosmo\'s Kustom Kars. Because Izzy is an employee, this transaction needs to be carefully scrutinized. The acquisition of the Thunderbird is considered as a(n) bargain purchase v The $ is deemed to be additional compensation and includable in Izzy\'s gross income v If Izzy sells the can Izzy\'s basis in the property is $ for $25,000, he vill realize a loss V of $ The loss is not deductible v

Solution

The $ 13,000 is deemed to be additional compensation and icludable in Izzy gross income Izzy basis in the property is $ 28,000 If Izzy sells the car for $25,000 he will realize a loss of $ 3,000 Note : The amount of $ 13,000 is the difference between the Thunderbird general selling price of 28,000 and the amount paid by Izzy 15,000 The property will be recorded at market price of 28,000 The loss of 3,000 is the difference between book value of 28,000 and sale value of 25,000