Problem:
Monique is planning to increase the size of the manufacturing business that she operates as a sole proprietorship. She has a number of older assets that she will replace as part of the expansion. In addition, to finance this expansion she will have to sell some of her personal assets. Because it is close to the end of the tax year, she can time the sales of the assets to take the greatest advantage of the tax laws. Monique is currently in the 35 percent tax bracket.
Following are the assets that Monique plans to sell; assume that she will realize their fair market value on the sales:
Business Acquisition Fair Market Department Adjusted Original
Assets Date value Method Basis Cost
1. Truck 1995 3,000 MACRS 0.00 20,000
2. 0/Bldg 1990 300,000 MACRS 160,000 285,000
3. Machine 1 2000 10,000 MACRS 25,000 80,000
4. Machine 2 2001 60,000 MACRS 55,000 95,000
Personal Assets Acquisition Date Fair Market Value Original Cost
1. Sculpture 1991 400,000 260,000
2. Painting 1998 400,000 525,000
3. 100,000 Shares ACC 2004 800,000 1,050,000
4. 10,000 Shares BBL 2006 400,000 350,000
In addition to the proceeds from the sales of the business assets, Monique needs a minimum of an additional $800,000 for her planned expansion. What assets should Monique sell to minimize her tax liability on the sales of the business and personal assets?