Reference no: EM132660134

Problem - Managing Capital Asset Transactions

Maurice has come to you for tax advice regarding his investments. He inherited $750,000 from his uncle, Joe. A financial adviser suggested that he make the following investments, which he did nine months ago.

$5,000 for 100 shares of Eagle Company stock.

$50,000 for a 50 percent interest in a patent that Kevin, a college roommate who is an unemployed inventor, obtained for a special battery he developed to power green cars. To date, Kevin has been unable to market the battery to an auto manufacturer or supplier, but he has high hopes of doing so in the future.

$95,000 to purchase a franchise from Orange, Inc.

$200,000 in the stock of Purple, Inc., a publicly held bank that follows a policy of occasionally paying dividends. At one time, the stock appreciated to $300,000, but now it is worth only $210,000. Maurice is considering selling this stock.

$50,000 in tax-exempt bonds. The interest rate on the bonds is only 3 percent. Maurice is considering moving this money into taxable bonds that pay 3.5 percent.

$100,000 for a 10 percent ownership interest as a limited partner in a real estate development. Lots in the development are selling well.

Maurice read an article that discussed the beneficial tax rates for capital assets and dividends. He really liked the part about "costless" capital gains, although he did not understand it. Maurice has retained his job as a toll booth supervisor at the municipal airport. His annual compensation is $35,000. He likes the job and has met some interesting people there.

Respond to Maurice's request for tax advice.