Fundamentals of Taxation 2015 8th Edition
by Cruz ISBN 0077862309 9780077862305
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Chapter 07
Capital Gains and Other Sales of Property
True / False Questions
1. When the buyer assumes the seller's liability, the seller includes this amount in computing the amount realized from the sale.
True False
2. The forms used to report a gain or loss on the sale of an asset depend on the classification of the asset being sold rather than on how the asset was used prior to sale.
True False
3. Property owned by a taxpayer and used either for personal purposes, investment, or in a trade or business is a capital asset.
True False
4. A computer used exclusively in a sole proprietor's business is a capital asset.
True False
5. Real property held for investment is a capital asset.
True False
6. Inventory on hand at the end of the year is Section 1231 property.
True False
7. Section 1202 allows for an exclusion of up to 50% of the eligible gain on the sale or exchange of qualified small business stock if held for more than one year.
True False
8. The donee's basis in depreciated property (when the FMV at the time of the gift is less than the donor's basis) is FMV at the time of the gift.
True False
9. The holding period for property acquired by inheritance begins on the date of the decedent's death.
True False
10. The holding period of an asset starts on the date acquired and ends on the day the asset is sold.
True False
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11. Short-term capital losses first reduce 28% gains, then 25% gains, and if any loss remains, the 20%, 15% or 0% group.
True False
12. Currently, the maximum capital gain rate applied to a taxpayer in the 15% regular tax bracket is 0%.
True False
13. Unused capital losses in any one year carry forward indefinitely to offset any future shortterm or long-term gains.
True False
14. To qualify as Section 1231 property, the property must be used in a taxpayer's trade or business and must be held for more than one year.
True False
15. If Section 1231 losses exceed Section 1231 gains, the excess is treated as an ordinary loss.
True False
16. The purpose of Code Sections 1245 and 1250 recapture provisions is to restrict the possibility of converting ordinary income into capital gains through use of depreciation deductions.
True False
17. If the taxpayer's aggregate Section 1231 gains for the year exceed aggregate Section 1231 losses for the year, all such gains and losses are considered to be ordinary.
True False
18. If a taxpayer has a net Section 1231 loss for the year, all Section 1231 gains and losses are treated as being capital gains and losses.
True False
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19. If the property's fair market value at the date of the gift is lower than the adjusted basis, then the property's basis for determining lossis its fair market value on that date.
True False
20. The basis of inherited property to the beneficiary is the FMV at the date of death or alternate valuation date.
True False
21. If a taxpayer cannot specifically identify which shares of stock were sold, the average cost of all shares held is used as the adjusted basis of the shares that were sold.
True False
22. The taxpayer always reports a worthless security as a long-term capital loss in the year the security becomes worthless.
True False
23. If the taxpayer has capital gain distributions from a mutual fund and no other capital gain transactions for the year, a Schedule D is not required to be prepared.
True False
24. A taxpayer who receives only one form 1099-B from the sales of stock can enter the transaction directly to Schedule D.
True False
25. To figure the gain or loss from the sale of property received as a gift, the donor's adjusted basis at the time of the gift is the basis to the donee.
True False
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26. The amount realized from a sale or trade of property is the amount received for the asset minus the basis that will be recognized for tax purposes.
True False
27. In general, the basis of property purchased is the cost of the asset including cash, debt obligations, and other property or services included in acquiring the asset.
True False
28. The basis of property transferred to a taxpayer from a spouse or former spouse incident to a divorce is the FMV of the property at the date the divorce was final.
True False
29. If land were an investment held in a trade or business, the gain or loss would be reported on Schedule D.
True False
30. Section 1221 assets are any asset used in a trade or business.
True False
31. Capital assets are usually defined by the IRC as any asset used for personal or investment purposes and sometimes are defined by the IRC as what they are not.
True False
32. When a Section 1231 asset is sold, the gain can be either classified as an ordinary or capital gain.
True False
33. Ordinary gains or losses produced outside the normal course of business relate to the sale of business property held less than one year and do not include the sale of accounts receivable.
True False
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34. The 25% bracket is a special rate that relates to capital gains from Section 1250 property used in a trade or business.
True False
35. A taxpayer can deduct a loss on a security when the market price of the stock is less than the basis at the end of the year.
True False
36. All gains and losses on the sale of property that was held for more than one year is subject to preferential tax rates.
True False
37. All net losses exceeding the $3,000 per year are carried over as long-term losses because they will have occurred more than one year ago.
True False
38. For sales of Section 1231 business property, long-term gains are taxed at preferential rates while long-term losses are considered ordinary losses and deductible in the year they are incurred.
True False
39. Any Section 1245 gain is recognized as "ordinary" to the extent of the depreciation taken.
True False
40. To figure the gain or loss from the sale of property received as a gift, the donee must know the donor's adjusted basis as well as the FMV at the date of the gift.
True False
Multiple Choice Questions
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41. Before the tax implications of asset sales can be determined, which of the following must be determined?
A. assets must be classified as either personal, trade or business, or investment assets.
B. the length of time the taxpayer owned the property.
C. whether the assets are subject to depreciation.
D. all of these.
42. Patrice sells a parcel of land for $50,000 cash and the buyer assumes Patrice's liability of $7,000 on the land. Patrice's basis in the land is $40,000. What is the gain or loss she will recognize on the sale?
A. $3,000 gain.
B. $10,000 gain.
C. $17,000 loss.
D. $17,000 gain.
43. A taxpayer purchased land in 2007 for $85,000 and sold it in 2014 for $75,000 cash. The buyer also assumed the mortgage of $5,000. What is the amount of gain/loss on the sale of the land?
A. $5,000 loss.
B. $5,000 gain.
C. $15,000 gain.
D. $20,000 loss.
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44. The gain or loss on land sold within one year of purchase is recorded on which one of the following forms or schedules?
A. Form 4797 if the sale was an asset held for investment purposes by a taxpayer who is a sole proprietor.
B. Form 4797 if the sale was an asset used in a trade or business by a sole proprietor.
C. Schedule D if the sale was an asset used in a trade or business by a sole proprietor who also files a Schedule C.
D. Schedule C if the sale was an asset used in a trade or business of a sole proprietorship.
45. Which one of the following is Section 1231 property?
A. Accounts receivable.
B. Copyright owned by an author.
C. Inventory.
D. A building used in a trade or business.
46. Which one of the following is a capital asset?
A. Household furnishings.
B. Business inventory.
C. A non-musical copyright created by the taxpayer.
D. Rental property.
47. What is the basis of artistic works that have been gifted to another by the creator?
A. Artistic works are not capital assets for the creator or the recipient of the artistic works if given as a gift.
B. Artistic works are not capital assets for the creator but are capital assets in the hands of the recipient if the creator gave the artistic works as a gift.
C. Artistic works are capital assets to the creator if they are sold to an unrelated person.
D. Artistic works are capital assets if they were available for sale in an art gallery.
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48. Section 1231 property is:
A. Property used in a trade or business that is subject to depreciation and is held for more than one year.
B. Property used in a trade or business that may or may not be subject to depreciation and held for less than one year.
C. All property used in a trade or business regardless of how long the asset is held.
D. Property used in a trade or business that may or may not be subject to depreciation and is held for more than one year.
49. Juanita is a sole proprietor who has some outstanding receivables she wishes to sell. The receivables have a $16,000 FMV and a basis of $10,000. Juanita sells the receivables for $12,500. What gain or loss does Juanita recognize on the sale?
A. $3,500 capital loss.
B. $3,500 ordinary loss.
C. $2,500 capital gain.
D. $2,500 ordinary gain.
50. Marquez purchased some equipment for $58,750 on August 15, 2013. He decided he did not need the equipment so he sold it on June 13, 2014 for $56,500. The equipment was subject to depreciation of $6,964 for 2013 and 2014. What gain or loss will Marquez recognize on the sale of the equipment?
A. $2,250 ordinary loss.
B. $2,250 capital loss.
C. $4,714 ordinary gain.
D. $4,714 capital gain.
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51. Lourdes, a sole proprietor, collected $8,650 on November 21, 2014 on some of her outstanding receivables. Her basis in these receivables was $0. What is the gain or loss Lourdes recognizes for 2014?
A. no gain or loss as the payments are within the normal course of business.
B. a short-term gain as the payments are from receivables that are always considered shortterm.
C. a short-term loss as the FMV is greater than the payments received on the receivables.
D. an ordinary gain because the receivables had a FMV greater than the basis of the receivables.
52. Which of the following statements is correct regarding the sale of ordinary assets?
A. the sale of inventory for a profit is considered to be a sale of an ordinary asset.
B. the sale of an asset outside the normal course of a trade or business is a sale of an ordinary asset.
C. the sale of business property held for more than a year is a sale of an ordinary asset.
D. the sale of any business property regardless of holding period is a sale of an ordinary asset.
53. On which form or schedule is the selling of inventory related to the course of business recorded for a sole proprietor?
A. Form 4797.
B. Schedule SE.
C. Schedule C.
D. Schedule D.
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54. Hiroko, a single taxpayer, has wage income of $80,000. In addition, she has $5,000 in longterm capital losses, $4,000 in long-term capital gains, and $4,000 in short-term capital gains. What is Hiroko's AGI for 2014?
A. $72,000.
B. $73,000.
C. $83,000.
D. $88,000.
55. A taxpayer has 6 separate capital gain transactions. Four of them are long-term and two are short term transactions. Two of the long term transactions have box 3 from Form 1099-B checked, one does not have box 3 from Form 1099-B checked, and there was no 1099-B received for one of the long term transactions. One short term transaction has box 3 from a 1099-B checked and the other transaction does not have box 3 from a 1099-B checked. How many Form 8949 must the taxpayer complete? A.
56. Reuben, a single taxpayer, has wage income of $75,000. He also has a short-term capital loss of $5,000, a short-term capital gain of $2,000, and a long-term capital gain of $3,000. What is Reuben's AGI for 2014?
A. $72,000.
B. $75,000.
C. $77,000.
D. $78,000.
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57. Gilberto invested in a mid-size local company with gross assets of $16,000,000. Gilberto purchased 1,000 shares for $48,000 in 1999. In 2014, Gilberto sold the stock for $78,000. How is the gain treated for tax purposes?
A. $30,000 capital gain, taxed at preferential rates.
B. $15,000 excluded from gross income under Section 1202 with the remaining gain recognized and taxed at regular tax rates.
C. $15,000 excluded from gross income under Section 1202 and $15,000 taxed at 28%.
D. $15,000 excluded from gross income under Section 1202 and $15,000 taxed at preferential rates.
58. The top tax rates for an individual with long-term capital gains on the sale of stock and on the sales of collectibles, sold after December 31, 2012 are:
A. 0%, 15%.
B. 15%, 25%.
C. 20%, 28%.
D. 25%, 28%.
59. Patty and Rich, married filing jointly, have $385,000 in MAGI and $90,000 of net investment income (NII). They will pay a surtax of:
A. $0.
B. $1,710.
C. $3,420.
D. $5,130.
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60. Glenn sells a piece of equipment used in his business for $31,500. The equipment was purchased on July 1, 2012, at a cost of $22,000. Glenn has taken $6,600 of depreciation on the equipment. What are the amount and classification of the gain on the sale by Glenn?
A. $6,600 ordinary income under Section 1245 and $9,500 Section 1231 gain.
B. $9,500 Section 1231 gain.
C. $16,100 ordinary income under Section 1245.
D. $16,100 Section 1231 gain.
61. Shanstella bought a 4-unit apartment building in July 2005 for $360,000 and sold it for $480,000 in 2014. There was $96,541 of accumulated straight-line depreciation on the apartment building. Assuming that Shanstella is in the 33% tax bracket, how much of her gain is taxed at 25%?
A. $0.
B. $96,541.
C. $120,000.
D. $216,541.
62. Jake purchased a $300,000 earthmover for his business. He sold the earthmover for $245,000 after taking $210,000 of depreciation. What is the nature and amount of the gain or loss on the sale?
A. $55,000 Section 1245 ordinary income and $100,000 Section 1231 gain.
B. $90,000 Section 1245 ordinary income and $65,000 Section 1231 gain.
C. $155,000 Section 1231 gain.
D. $155,000 Section 1245 ordinary income.
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63. In 2008, Naila purchased land for $77,000 for use in her landscape business. She sold it in 2014 for $83,000. If Naila has no other sales of business or trade property, how will this gain be taxed?
A. $6,000 short-term capital gain.
B. $6,000 long-term capital gain.
C. $6,000 ordinary income.
D. $6,000 Sections 1231 gain.
64. On May 1, 2013, Kelalani purchased land for $98,000 for use in her business. She sold it on May 2, 2014, for $92,000. If there are no other sales of business or trade property, how is this loss treated for tax purposes on Kelalani's return?
A. $6,000 short-term capital loss.
B. $6,000 long-term capital loss.
C. $6,000 ordinary loss.
D. $6,000 Section 1231 loss.
65. Sylvio purchased an apartment building as an investment in January 2008 for $383,500 and sold it for $475,000 in 2014. He reported $68,436 of allowed accumulated straight-line depreciation. If Sylvio is in the highest tax bracket for ordinary income, how much of his gain qualifies for preferential tax treatment?
A. $0.
B. $68,436.
C. $91,500.
D. $159,936.
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66. Keisha sold 200 shares of Chic-Chic stock in 2014 for $22,500 and received a 1099-B to record the sale of the shares. Keisha's investment portfolio includes the following purchases of Chic-Chic's stock:
Assuming Keisha does not identify which shares she sold, she will recognize
A. no gain or loss.
B. $500 gain.
C. $1,000 loss.
D. $3,125 loss.
67. Kwon-Lee sold 200 shares held in FNP Mutual Fund in 2014 for $22,500 and received a 1099B to record the sale of the shares. Kwon-Lee's investment portfolio includes the following purchases of FNP Mutual Fund stock:
Assuming Kwon-Lee uses the single category average cost method, he will recognize
A. no gain or loss.
B. $500 gain.
C. $1,000 loss.
D. $3,125 loss.
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68. Anike received property as part of an inheritance from her father who passed away on March 10, 2014. The property was purchased by her father on July 3, 2013, for $146,000. Anike sold the property on June 30, 2014, for $158,000. At the date of his death the property had a FMV of $144,000. What gain, if any, will Anike pick up on her return for 2014?
A. no gain is recognized on the sale of property sold within 1 year of inheritance.
B. $3,000 long-term gain.
C. $14,000 short-term gain.
D. $14,000 long-term gain.
69. Elandra purchased 500 shares in Prompt Messenger Services for $12,000 on November 21, 2013. The company went bankrupt on June 13, 2014, with no hope of recovery for the shareholders. On what date is the stock deemed to be worthless and what is the nature of the loss?
A. December 31, 2013, short-term loss in 2013.
B. December 31, 2014, short-term loss in 2014.
C. December 31, 2014, long-term loss in 2014.
D. June 13, 2014, short-term loss in 2014.
70. Dan sold 135 shares (assume 100 are long-term) of Elite Mutual Fund on July 26, 2014 for $95 per share and received a 1099-B (box 3 was not checked for basis) to record the sale of the shares. Dan's investment portfolio includes the following purchases of Elite Mutual Fund:
In 2014, Dan will recognize:
A. no long-term gain or loss and a $333.45 short-term gain.
B. $315 short-term gain and a $900 long-term gain.
C. $250 long term loss and $583.45 short-term gain.
D. no short-term gain or loss and a $1,215 long-term gain.
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71. Which of the following statements is incorrect regarding the gain or loss from the sale of property received as a gift?
A. If the FMV is less than the donor's adjusted basis at the time of the gift, the basis for figuring the gain is the donor's basis.
B. If the FMV is less than the donor's adjusted basis at the time of the gift, the basis for figuring the loss is the FMV of the asset.
C. If the FMV is equal to or more than the donor's adjusted basis, the basis for any gain or loss on a sale is the FMV of the asset.
D. If the FMV is equal to or more than the donor's adjusted basis, the basis for any gain or loss on a sale is the donor's adjusted basis.
72. Joe received a parcel of land as a gift from his sister, Lisa, in 2009. At the time of the gift, the land had a FMV of $10,000. Lisa purchased the land in 2005 for $13,000. If Joe sells the land in 2014 for $22,450, he will report a
A. $9,450 ordinary gain.
B. $9,450 capital gain.
C. $12,450 capital gain.
D. $19,540 capital gain.
73. In 2005, Savannah purchased 200 shares of Hi-Style stock as an investment. The stock cost $12,000. In 2014 when the fair market value was $14,000, Savannah gave the stock to her daughter, Daniele. If no gift tax is paid and Daniele sells the stock for $15,000, she will recognize:
A. no gain or loss.
B. a $1,000 gain.
C. a $2,000 gain.
D. a $3,000 gain.
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74. Diane gifted 100 shares of Runners Link common stock with a FMV of $8,000 to her brother, Sean. The stock originally cost Diane $11,000. Sean later sells the stock on the open market for $9,000. Sean recognizes:
A. no gain or loss.
B. a $1,000 gain.
C. a $2,000 loss.
D. a $2,000 gain.
75. Josephine gave her son, Shane 700 shares of Creative Marketing, Inc. common stock on May 26, 2013. Josephine originally paid $9,000 for the stock on April 15, 2013. At the date of the gift, the fair market value of the stock was $8,500. If no gift tax is paid and Shane sells the stock for $5,500 on May 26, 2014, he will recognize:
A. a short-term capital loss.
B. a long-term capital loss.
C. an ordinary loss.
D. no loss because Josephine already recognized the loss when she gave the stock to Shane.
76. Francisco sells a parcel of land for $90,000 cash and the buyer also assumes Francisco's liability of $10,000. The basis of his land is $60,000. What is the gain or loss realized on the sale?
A. $10,000 gain.
B. $20,000 gain.
C. $30,000 gain.
D. $40,000 gain.
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77. A taxpayer purchased land in 2012 for $26,000 and sold it in 2014 for $31,000 cash. The buyer also assumed the remaining mortgage of $13,000. What is the amount recognized on the sale of the land?
A. $5,000 gain.
B. $8,000 loss.
C. $8,000 gain.
D. $18,000 gain.
78. The gain or loss on the sale of property held as an investment is recorded on which one of the following forms or schedules?
A. Form 4797 if the sale was from an asset used for investment purposes by a taxpayer who purchased it with company money as a sole proprietor.
B. Schedule D if the sale was an asset used in a trade or business by a sole proprietor.
C. Schedule D if the sale was an asset used for investment purposes by a taxpayer.
D. Form 4797 regardless if the asset was purchased for investment if the taxpayer is a sole proprietor.
79. The following is true if land is sold except:
A. The gain on the sale of land used in a business is recorded on Form 4797.
B. The gain on the sale of land used in a business is recorded on Schedule D.
C. The gain on the sale of land used in a business is ordinary income and can appear on a Schedule C if it is owned by a sole proprietor.
D. The gain on the sale of land appears on the Form 1040 under the heading "other income".
80. Which of the following is Section 1231 property?
A. Inventory.
B. Copyright owned by the author.
C. A building used in a trade or business.
D. Accounts receivable.
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81. Which one of the following is a capital asset?
A. Business inventory.
B. A computer used for investments.
C. A non-musical copyright created by the taxpayer.
D. Rental property.
82. All of the following statements regarding Section 1231 are incorrect except:
A. Property used in a trade or business regardless of how long the asset is held.
B. Property used in a trade or business that may or may not be subject to depreciation and held for more than one year.
C. Property used in a trade or business that is subject to depreciation and held for more than one year.
D. Property used in a trade or business that may or may not be subject to depreciation and held for less than one year.
83. Which of the following is a Section 1221 asset?
A. Rental property.
B. Business inventory.
C. Gold, silver, or other metals.
D. An original painting created by the taxpayer after May 17, 2006.
84. A capital asset includes all the following except:
A. A taxpayer's home.
B. Inherited property.
C. Real estate used in the taxpayer's trade or business.
D. Real estate held for investment.
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85. Greg sold some equipment for $72,510 on June 13, 2014. Greg had originally purchased the equipment for $86,750 on November 21, 2013. The equipment was subject to depreciation of $17,350. What gain or loss will Greg recognize on the sale?
A. $3,110 ordinary gain.
B. $3,110 capital gain.
C. $8,250 capital loss.
D. $8,250 ordinary loss.
86. Which of the following statements is correct regarding the sale of ordinary assets as discussed in this chapter?
A. The sale of an asset (held less than a year) outside the normal course of a trade or business is a sale of an ordinary asset.
B. The sale of any business property regardless of holding period is a sale of an ordinary asset.
C. The sale of inventory for a profit is considered to be a sale of an ordinary asset.
D. The sale of business property held for more than a year is a sale of an ordinary asset.
87. Tamiko buys a painting from a collector for resale in her gallery for $3,500. She sold it 15 months later for $5,500. What are the nature and amount of the gain on the sale of the painting?
A. $2,000 Section 1245 gain.
B. $2,000 ordinary income.
C. $2,000 Section 1231 gain.
D. $2,000 gain subject to 28% collectibles tax rate.
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88. Samson purchased some equipment for $86,749 on March 15, 2013. He decided he did not need the equipment and sold it on March 10, 2014 for $82,000. The equipment was subject to depreciation of $16,851 for 2013 and 2014. What gain or loss will Samson recognize on the sale of the equipment?
A. $4,749 capital loss.
B. $4,749 ordinary loss.
C. $12,102 capital gain.
D. $12,102 ordinary gain.
89. Yolanda, a single taxpayer, has W-2 income of $87,500. She also has a short-term capital loss of $7,000, a short-term capital gain of $1,000, and a long-term capital gain of $2,000. What is Yolanda's AGI for 2014?
A. $83,500.
B. $84,500.
C. $89,500.
D. $90,500.
90. Heidi invested in a mid-sized local company with gross assets of $17,000,000. Heidi purchased 2,000 shares for $44,000 in 1998. In 2014, Heidi sold the stock for $84,000. How is the gain treated for tax purposes?
A. $40,000 capital gain and taxed at preferential rates.
B. $20,000 excluded from gross income under Section 1202 with the remaining gain recognized and taxed at regular rates.
C. $20,000 excluded from gross income under Section 1202 and $20,000 taxed at 28%.
D. $20,000 excluded from gross income under Section 1202 and $20,000 taxed at preferential capital gains rates.
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91. In 2014, Carmen had a net capital loss of $10,000 and taxable income of $100,000. What is Carmen's loss carryforward to 2015?
A. $0.
B. $3,000.
C. $5,000.
D. $7,000.
92. Jack purchased 100 shares of Ford stock on April 22, 2013. If he sells the stock on April 21, 2014, what is the character of the sale?
A. If the sale produces a gain, the gain is taxed at preferential rates because the holding period requirement does not apply to stock sales.
B. If the sale produces a loss, the entire loss can be taken only in the year of the sale because the stock was held for less than one year.
C. Regardless of whether the sale produces a gain or loss, the transaction qualifies for preferential treatment because the asset sold is stock.
D. Regardless of whether the sale produces a gain or loss, the transaction does not qualify for preferential treatment because the stock was not held for more than one year.
93. Gabriella, a single taxpayer, has wage income of $160,000. In addition, she has $7,000 in long-term capital losses, $1,000 in long-term capital gains, $3,000 in short-term capital gains, and $1,000 in short-term losses. What is Gabriella's AGI for 2014?
A. $156,000.
B. $157,000.
C. $160,000.
D. $161,000.
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94. Demetrius had a $4,000 short-term loss and a $3,000 long-term gain from a collectible, a $2,000 gain from Section 1250 unrecaptured property. What is the netting effect of these gains and losses on his 1040?
A. $4,000 short-term loss is offset against the $3,000 collectible first, then the remaining $1,000 against the Section 1250 property, with a $1,000 gain taxed at 25%.
B. The $4,000 short-term loss is allowed to be taken in total as an ordinary loss, and the net long-term gain of $5,000 is added to his 1040 and taxed at 0%, 15%, or 20% depending on his regular tax bracket.
C. $2,000 short-term loss is offset against the Section 1250 property first, then the remaining $2,000 against the collectible gain leaving $1,000 taxed at 28%.
D. As each of these gains and losses are taxed at different rates, there is no netting of shortterm and long-term gains or losses.
95. Sammy sells a piece of specialized equipment (with a high resale value) used in his business for $41,650 on September 10, 2014. The equipment was purchased on May 20, 2011 for $32,000. Sammy has taken $9,200 of depreciation on the equipment. What are the amount and classification of the gain on the sale by Sammy?
A. $18,850 Section 1231 gain.
B. $9,200 Section 1231 gain and $9,650 Section 1245 ordinary income.
C. $9,200 ordinary income under Section 1250 and $9,650 Section 1231 gain.
D. $9,200 ordinary income under Section 1245 and $9,650 Section 1231 gain.
96. Otis bought a 2-unit apartment building in July 2007 for $330,000 and sold it for $400,000 on December 20, 2014. At the time of sale there was $83,493 of accumulated straight-line depreciation on the apartment building. Assuming Otis is in the 33% tax bracket, how much of the gain will be taxed at 25%?
A. $0.
B. $70,000.
C. $83,493.
D. $153,493.
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97. In 2011, Joe purchased land for $73,500 for use in his business. He sold it in 2014 for $100,000. What is the gain on the sale before any netting?
A. $26,500 Section 1231 gain.
B. $26,500 Section 1245 gain.
C. $26,500 Section 1250 gain.
D. $26,500 ordinary income.
98. Keiko sells a piece of equipment used in her business for $14,853 on August 10, 2014. The equipment was purchased on January 4, 2013 at a cost of $12,849. Keiko has taken $3,855 of depreciation on the equipment. What is the amount and classification of the gain on the sale by Keiko?
A. $5,859 ordinary income under Section 1245.
B. $5,859 Section 1231 gain.
C. $3,855 ordinary income under Section 1245 and $2,004 Section 1231 gain.
D. $3,855 Section 1231 gain and $2,004 ordinary income under Section 1245.
99. Aneta sold an apartment building for $713,470 in 2014. She purchased the building in 2008 for $600,000 and has taken $151,806 in depreciation on the building. Assuming Aneta is in the 33% tax bracket, how is her gain taxed?
A. $113,470 at 0% and $151,806 at 28%.
B. $113,470 at 25% and $151,806 at 15%.
C. $151,806 at 28% and $113,470 at 15%.
D. $151,806 at 25% and $113,470 at 15%.
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100.Leslie buys a sculpture from a collector for resale in her gallery. She purchased the sculpture for $5,000 and sold it 24 months later for $9,000. What are the nature and the amount of the gain on the sale?
A. $4,000 gain subject to 28% tax rate.
B. $4,000 Section 1245 gain.
C. $4,000 ordinary income.
D. $5,000 ordinary gain and $4,000 Section 1231 gain.
101.In 2009, Terri purchased 260 shares of Flowers R Us stock at a cost of $9,600 as an investment. In 2014, when the fair market value was $11,400, Terri gave the stock to her daughter, Michele. Assuming no gift tax was paid, if Michele sells the stock for $13,800, she will recognize:
A. no gain or loss.
B. $1,800 gain.
C. $2,400 gain.
D. $4,200 gain.
102.In 2014, Linda gave her son, Jonathan 425 shares of School Products, Inc. common stock. Linda paid $8,350 for the stock in 2008. At the date of the gift, the FMV of the stock was $5,800. Assuming that there is no gift tax paid, if Jonathan sells the stock for $5,000, he will recognize:
A. no gain or loss.
B. $800 loss.
C. $3,350 loss.
D. $3,450 loss.
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103.Jeannie purchased 1,000 shares in Course Developers for $10,000 on August 11, 2013. The company went bankrupt on May 11, 2014 with no hope of recovery for the shareholders. On what date is the stock deemed to be worthless and what is the nature of the loss?
A. December 31, 2013 short-term loss in 2013.
B. December 31, 2014, short-term loss in 2014.
C. December 31, 2014, long-term loss in 2014.
D. May 11, 2014, short-term loss in 2014.
104.Wyatt sold 300 shares of Clothes and More, Inc. in 2014 for $30,000. Wyatt's investment portfolio includes the following purchases of Clothes and More, Inc. stock:
Assuming Wyatt does not identify which shares he sold, he will recognize a(an)
A. $8,000 gain.
B. $7,125 gain.
C. $500 gain.
D. $500 loss.
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105.In 2014, Daryl sold 425 shares of Basketball Heaven Mutual Fund for $18,000. He made the following purchases of Basketball Heaven stock:
Assuming Daryl uses the single category average cost method, he will realize:
A. $1,750.00 long-term loss.
B. $2,200.00 long-term loss.
C. $3,125.00 long-term loss.
D. $3,462.50 long-term loss.
106.Padraic purchased 50 shares of stock as an investment for the purchase price of $1,500 in 2011. In 2014 when the fair market value of the stock was $2,000, Padraic gave the stock to his sister, Fiona. If no gift tax is paid and Fiona sells the stock for $1,750 she will recognize:
A. $250 gain.
B. $300 gain.
C. $500 gain.
D. $800 gain.
107.Amal gave his sister, Dora 100 shares of stock on April 3, 2013. Amal originally paid $3,100 for the stock on January 5, 2013. At the date of the gift, the fair market value of the stock was $2,800. If no gift tax is paid and Dora sells the stock for $2,700 on August 31, 2014, she will recognize:
A. a short term capital loss.
B. an ordinary loss.
C. a long-term loss.
D. no loss on the sale of stock given as a gift.
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108.Norman received shares of stock as a gift from his uncle in 2012. At the time of the gift, the stock had a FMV of $5,000. The uncle purchased the stock in 2010 and had a basis of $6,000. If Norman sells the stock for $7,000 in 2014, he will report a:
A. $1,000 ordinary gain.
B. $1,000 capital gain.
C. $2,000 ordinary gain.
D. $2,000 capital gain.
109.Geraldine inherited a piece of land when her father Albert died on July 26, 2013. The FMV of the land at the date of death was $40,000 and cost Albert $20,000 in 2007. Geraldine sold the land on March 29, 2014 for $45,000. What are the amount and nature of the gain on the sale?
A. $5,000 ordinary gain.
B. $5,000 capital gain.
C. $25,000 ordinary gain.
D. $25,000 capital gain.
110.Oliver purchased the following stock of Doggie Treats Inc.
If Oliver sold 25 shares of stock in 2014 for $265, what is the loss on the sale of the stock? Assume the shares purchased in 2013 were held for more than one year.
A. $9.50 short-term loss and $38.00 long-term loss.
B. $9.50 long-term loss and $38.00 short-term loss.
C. $8.00 short-term loss and $17.00 long-term loss.
D. $8.00 long-term loss and $17.00 short-term loss.
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Short Answer Questions
111.In 2014, Marty has a net short-term capital loss of $2,400, a net long-term capital loss of $12,000, and wage income of $59,850.
a. What is Marty's capital loss deduction for 2014?
b. What amount of the capital loss qualifies as a carryover?
c. What is Marty's total income for 2014 before additions/deductions for adjusted gross income?
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112.Otis, the taxpayer, has the following capital gains and losses for the year:
a. What is his net short-term gain (loss)?
b. What is his net long-term gain (loss)?
c. What amount of the gain (loss) is entered on his 1040, (line 13) Capital gain or (loss) from Schedule D?
113.Mikeala has taxable income of $73,240, without consideration of capital gain or loss transactions. Mikeala has a short-term capital gain of $11,000, a short-term capital gain of 3,000, and a long-term capital loss of $4,000.
a. What is the net capital gain(loss) included in taxable income?
b. Is it short term or long term in nature?
c. What is the amount and nature of any carryover?
d. Assuming none of the gains or losses are from collectibles or unrecaptured Section 1250 property, at what tax rate will the gains or losses be taxed to Mikeala? (Mikeala is in the 33% tax bracket for ordinary income.)
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114.Sara owns an automobile for personal use. The adjusted basis is $13,500 and the FMV is $10,500. Sara has owned the car for two years.
a. Calculate the realized gain(loss) if Sara sells the vehicle for $12,500.
b. Calculate the recognized gain (loss) if Sara sells the vehicle for $12,500.
c. Calculate the realized gain (loss) if Sara sells the vehicle for $15,000.
d. Calculate the recognized gain (loss) if Sara sells the vehicle for $15,000.
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115.Respond to the following independent situations:
a. Marie and Jim, husband and wife, filing jointly, earn $375,000 in salaries and do not have any net investment income.
How much in surtax will Marie and Jim be assessed on their Form 1040 for 2014? _____
b. Marie and Jim, husband and wife, filing jointly, earn $275,000 in salaries and $60,000 in capital gains, $40,000 in dividends, for a total MAGI of $375,000.
How much in surtax will Marie and Jim be assessed on their Form 1040 for 2014? _____
c. Marie and Jim, husband and wife, filing jointly earn $330,000 in income including $100,000 in capital gains.
How much in surtax will Marie and Jim be assessed on their Form 1040 for 2014? ______
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116.Jess sold a piece of equipment she used in her business. The equipment cost Jess $51,500 several years ago and had accumulated depreciation taken in the amount of $20,300. Jess sold the equipment for $35,000.
a. What is her Section 1245 property gain?
b. How much of the gain is subject to recapture at the 25% tax rate?
c. How much of the gain is ordinary income?
117.Dancing Feet Company, a sole proprietorship, acquired a building for use in the business on April 15, 2012, for $475,000. Straight-line depreciation allowed was $25,386. Dancing Feet Company sold the building for $380,000 on May 1, 2014.
a. What is the adjusted basis of the property at the time of the sale?
b. What is the amount of the gain (loss) upon the sale of the building?
c. What is the nature of the gain (loss)?
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118.Jim, the owner of a sole proprietorship, sold the following assets in 2014:
Complete the following table: and the character of the realized and recognized gain or loss from the sale of each asset. Assume the land was held for investment and had a FMV of $73,000.
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119.Jeffery, the owner of a remodeling company and a sole proprietor, sold a commercial building he used in his business. He acquired the building on February 15, 2011 for $420,000 and sold it December 30, 2014, for $480,000. Jeffery had taken $41,294 in depreciation. Assume Jeffery is in the 39.6% tax bracket and no other assets were sold in 2014.
a. What is the adjusted basis of the building?
b. What is the amount gain on the sale of the building?
c. How much of the gain is considered unrecaptured 1250 gain?
d. How much of the gain is considered a capital gain?
e. Calculate the tax on the unrecaptured 1250 gain.
f. Calculate the tax on the gain considered to be capital in nature.
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120.Stephanie sold the following stock in 2014. She received a 1099-B from each of the companies to record the sale.
a. Complete the following table:
b. Calculate the short term gain (loss) after netting.
c. Calculate the long term gain (loss) after netting.
d. What is the resulting gain(loss) to be shown on the return?
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121.Keeley purchased 1,000 shares in FAM, Inc. for $10,000 on December 19, 2013. The company went bankrupt on July 10, 2014 with no hope of recovery for the shareholders.
a. On what date is the stock deemed to be worthless?
b. What is the nature of the loss?
122.Greg received a gift of 300 shares of stock from his sister, Terri. The stock cost Terri $30,000 five years ago. At the date of the gift, the stock is worth $22,500.
a. If the stock is sold for $34,000, calculate the amount and nature of the gain or loss.
b. If the stock is sold for $20,000, calculate the amount and nature of the gain or loss.
c. If the stock is sold for $28,000, calculate the amount and nature of the gain or loss.
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123.Majoo inherited property from his uncle on August 15, 2014. His uncle purchased the property on December 10, 2012 for $100,000. At the date of his death, the property's FMV was $102,000. Majoo sold the property on September 30, 2014 for $105,000.
a. What is the gain on the sale of the property?
b. What is the nature of the gain?
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124.Genevieve sold 300 shares of stock on June 13, 2014 for $52,400. She purchased the shares on the following dates:
December 19, 2011 130 shares @ $90 per share
February 13, 2012 80 shares @ $80 per share
November 21, 2013 140 shares @ $70 per share
Assume these shares of stock sold were her only net investment income for 2014.
a. Determine the amount and character of the recognized gains or losses on the sale of the stock.
b. If Genevieve is in the 33% tax bracket, what is the amount of tax assessed on the sale of the stock considered long term?
c. If Genevieve is in the 15% tax bracket, what is the amount of tax assessed on the sale of the stock considered long term?
d. If Genevieve is in the 39.6% tax bracket, what is the amount of tax assessed on the sale of the stock considered long term?
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125.Anupay sold 900 shares of Stay-Rich Mutual fund for $85,600 in 2014. She purchased shares in the mutual fund in the following years.
2008 200 shares @ $105
2010 300 shares @ $100
2011 200 shares @ $110
2013 300 shares @ $88
2013 100 shares @ $95 (all 2013 shares are considered to be held for > 1 year)
a. Determine the amount of the gain or loss assuming Anupay uses the single category average cost method.
b. Assuming there are no other Schedule D transactions, how much of a gain or loss will Anupay recognize on her Form 1040 for 2014?
c. How much, if any of the gain or loss will be carried over to 2015?
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