Bob’s personal wealth including investments in land, stocks, and bonds is about $14,000,000. He reported an interest income of $20,000 and dividend income of $6,000 last year. The $14,000,000 includes land worth $9,000,000 that Bob bought in 1966 for $450,000.
Bob has hired your firm for professional advice regarding whether he should operate as a sole proprietor, a partnership, an S corporation, or a C corporation. He is also considering transferring a possible 40% interest in his new business to his daughter Mandy, age 23 and single.
Question: compute the property disposition capital gain and taxation of gross income for the client described in the final project. Based on your computations and relevant tax codes, explain the tax consequences on the possible sale or exchange of the land, including the impact on cash flow and salary or cash distributions.