Question 1

A taxpayer sells an asset with a basis of $25,000 to an unrelated party for $28,000.The taxpayer has a realized gain of $3,000.

Accepted Answer

A) True 
 B)False

Question 2

Section 1221 specifically states that inventory or property held primarily for sale to customers is not classified as a capital asset of the trade or business.

Accepted Answer

A) True 
 B)False

Question 3

Amanda,whose tax rate is 32%,has NSTCL of $25,000,a $30,000 LTCG from sale of a rare coin held 15 months and a $18,000 LTCG from the sale of stock held for three years.By what amount will Amanda's tax liability increase?

Accepted Answer

A) $3,450 
B) $4,100 
C) $5,880 
D) $4,300 
A) $3,450 
B) $4,100 
C) $5,880 
D) $4,300

Question 4

Unlike an individual taxpayer,the corporate taxpayer does not utilize the 25% and 28% specialty capital gain rates,but it does apply the 15% tax rate to adjusted net capital gain.

Accepted Answer

A) True 
 B)False

Question 5

To be considered a Section 1202 gain,the stock being sold must meet all of the following characteristics except

Accepted Answer

A) the stock must be issued after August 10,1993. 
B) the stock must be held more than five years. 
C) the corporation which issued the stock must be a C corporation. 
D) at least 50% of the value of the corporation's assets must be used in the active conduct of one or more qualified trades or businesses. 
A) the stock must be issued after August 10,1993. 
B) the stock must be held more than five years. 
C) the corporation which issued the stock must be a C corporation. 
D) at least 50% of the value of the corporation's assets must be used in the active conduct of one or more qualified trades or businesses.

Question 6

Melanie,a single taxpayer,has AGI of $220,000 which includes $160,000 of salary and $60,000 of investment income.She will pay Medicare tax on the $60,000 of investment income of

Accepted Answer

A) $0. 
B) $2,280. 
C) $760. 
D) $870. 
A) $0. 
B) $2,280. 
C) $760. 
D) $870.

Question 7

In 2017,Toni purchased 100 shares of common stock in Blue Corporation for $5,280.In 2018,Blue declared a stock dividend of one share of its common stock for each 10 shares held.In 2019,Blue's common stock split 2-for-1 at a time when the FMV was $80 a share.What is Toni's basis in each of her shares of the Blue Corporation stock if both of the earlier stock dividends were tax-free?

Accepted Answer

A) $24 per share 
B) $48 for 110 shares and $0 for all additional shares 
C) $52.80 for 100 shares and $0 for all additional shares 
D) $80 per share 
A) $24 per share 
B) $48 for 110 shares and $0 for all additional shares 
C) $52.80 for 100 shares and $0 for all additional shares 
D) $80 per share

Question 8

Abra Corporation generated $100,000 of taxable income from operations this year and realized a $4,000 loss on the sale of Starbucks stock.Abra Corporation will pay taxes on $97,000 of taxable income.

Accepted Answer

A) True 
 B)False

Question 9

A nonbusiness bad debt is deductible only in the year in which the debt becomes totally worthless.

Accepted Answer

A) True 
 B)False

Question 10

Kate subdivides land held as an investment and Section 1237 is satisfied.The lots sell for $30,000 per lot (basis $10,000).Kate sells five lots in the first year.Kate's ordinary income is

Accepted Answer

A) $0. 
B) $20,000. 
C) $100,000. 
D) $150,000. 
A) $0. 
B) $20,000. 
C) $100,000. 
D) $150,000.

Question 11

Terrell and Michelle are married and living in New York,which is a not a community property state.They jointly own property with an adjusted basis of $240,000.On December 2 of this year,Michelle died when the property had a fair market value of $260,000.Terrell's basis in the property after Michelle's death is

Accepted Answer

A) $0. 
B) $240,000. 
C) $250,000. 
D) $260,000. 
A) $0. 
B) $240,000. 
C) $250,000. 
D) $260,000.

Question 12

The taxable portion of a gain from qualified small business stock is taxed at a top tax rate of

Accepted Answer

A) 15%. 
B) 25%. 
C) 20%. 
D) 28%. 
A) 15%. 
B) 25%. 
C) 20%. 
D) 28%.

Question 13

During the current year,Tony purchased new car wash equipment for use in his service station business.Tony's costs in connection with the new equipment this year were as follows: $$\begin{array} { | l | r | } 
\hline \text { Cost of the equipment } & \$ 45,000 \
\hline \text { Sales tax on the equipment } & 4,000 \
\hline \text { Delivery charges } & 600 \
\hline \text { Installation and testing charges } & 3,000 \
\hline \text { Expenses of operating the equipment } & 2,000 \
\hline
\end{array}$$ What is Tony's basis in the car wash equipment?

Accepted Answer

A) $49,000 
B) $49,600 
C) $52,600 
D) $54,600 
A) $49,000 
B) $49,600 
C) $52,600 
D) $54,600

Question 14

A taxpayer owns 200 shares of stock in a corporation purchased in two blocks of 100 shares for different amounts and at different dates.The taxpayer sells 100 shares.Barring any specific instructions,the brokerage firm will report the cost basis using the higher cost block of stock first.

Accepted Answer

A) True 
 B)False

Question 15

Jack exchanged land with an adjusted basis of $65,000 subject to a liability of $22,000 for $50,000 (FMV)of stock owned by Hayden.Hayden takes the land subject to the liability.Jack incurs $500 of selling expenses.What is the amount of Jack's realized gain on the exchange?

Accepted Answer

A) ($14,000)loss 
B) ($14,500)loss 
C) $6,500 gain 
D) $7,000 gain 
A) ($14,000)loss 
B) ($14,500)loss 
C) $6,500 gain 
D) $7,000 gain

Question 16

Because of the locked-in effect,high capital gains tax rates may discourage taxpayer's from selling appreciated capital assets.

Accepted Answer

A) True 
 B)False

Question 17

In a basket purchase,the total cost is apportioned among the assets purchased according to the relative adjusted basis of the assets.

Accepted Answer

A) True 
 B)False

Question 18

Kathleen received land as a gift from her grandfather.At the time of the gift,the land had a FMV of $105,000 and an adjusted basis of $85,000 to Kathleen's grandfather.The grandfather did not have any gift taxes due.One year later,Kathleen sold the land for $110,000.What was her gain or (loss)on this transaction?

Accepted Answer

A) no gain or loss 
B) ($5,000) 
C) $20,000 
D) $25,000 
A) no gain or loss 
B) ($5,000) 
C) $20,000 
D) $25,000

Question 19

Mr.Dennis purchased a machine for use in his business.Mr.Dennis' costs in connection with this purchase were as follows: $$\begin{array} { | l | r | } 
\hline \text { Note to seller } & \$ 33,000 \
\hline \text { Cash paid to seller } & 5,000 \
\hline \text { State sales tax } & 2,400 \
\hline \text { Freight to place of business } & 1,500 \
\hline \text { Wages paid to workers to install } & \
\text { machine } & 4,200 \
\hline
\end{array}$$ What is the amount of Mr.Dennis' basis in the machine?

Accepted Answer

A) $33,000 
B) $40,400 
C) $41,900 
D) $46,100 
A) $33,000 
B) $40,400 
C) $41,900 
D) $46,100

Question 20

Kathleen received land as a gift from her grandfather.At the time of the gift,the land had a FMV of $85,000 and an adjusted basis of $110,000 to Kathleen's grandfather.One year later,Kathleen sold the land for $80,000.What was her gain or (loss)on this transaction?

Accepted Answer

A) no gain or loss 
B) ($5,000) 
C) $5,000 
D) $30,000 
A) no gain or loss 
B) ($5,000) 
C) $5,000 
D) $30,000

Exam 21: Property Transactions: Capital Gains and Losses

A taxpayer sells an asset with a basis of $25,000 to an unrelated party for $28,000.The taxpayer has a realized gain of $3,000.

Section 1221 specifically states that inventory or property held primarily for sale to customers is not classified as a capital asset of the trade or business.

Amanda,whose tax rate is 32%,has NSTCL of $25,000,a $30,000 LTCG from sale of a rare coin held 15 months and a $18,000 LTCG from the sale of stock held for three years.By what amount will Amanda's tax liability increase?

Unlike an individual taxpayer,the corporate taxpayer does not utilize the 25% and 28% specialty capital gain rates,but it does apply the 15% tax rate to adjusted net capital gain.

To be considered a Section 1202 gain,the stock being sold must meet all of the following characteristics except

Melanie,a single taxpayer,has AGI of $220,000 which includes $160,000 of salary and $60,000 of investment income.She will pay Medicare tax on the $60,000 of investment income of

Abra Corporation generated $100,000 of taxable income from operations this year and realized a $4,000 loss on the sale of Starbucks stock.Abra Corporation will pay taxes on $97,000 of taxable income.

A nonbusiness bad debt is deductible only in the year in which the debt becomes totally worthless.

Kate subdivides land held as an investment and Section 1237 is satisfied.The lots sell for $30,000 per lot (basis $10,000).Kate sells five lots in the first year.Kate's ordinary income is

The taxable portion of a gain from qualified small business stock is taxed at a top tax rate of

A taxpayer owns 200 shares of stock in a corporation purchased in two blocks of 100 shares for different amounts and at different dates.The taxpayer sells 100 shares.Barring any specific instructions,the brokerage firm will report the cost basis using the higher cost block of stock first.

Jack exchanged land with an adjusted basis of $65,000 subject to a liability of $22,000 for $50,000 (FMV)of stock owned by Hayden.Hayden takes the land subject to the liability.Jack incurs $500 of selling expenses.What is the amount of Jack's realized gain on the exchange?

Because of the locked-in effect,high capital gains tax rates may discourage taxpayer's from selling appreciated capital assets.

In a basket purchase,the total cost is apportioned among the assets purchased according to the relative adjusted basis of the assets.

Kathleen received land as a gift from her grandfather.At the time of the gift,the land had a FMV of $85,000 and an adjusted basis of $110,000 to Kathleen's grandfather.One year later,Kathleen sold the land for $80,000.What was her gain or (loss)on this transaction?

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

U.S. Taxation of Foreign-Related Transactions

an Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Deductions and Losses

Business Expenses and Deferred Compensation

Itemized Deductions

Losses and Bad Debts

Depreciation,cost Recovery,amortization,and Depletion

Accounting Periods and Methods

Property Transactions: Nontaxable Exchanges

Property Transactions: Sec1231 and Recapture

Special Tax Computation Methods,tax Credits,and Payment of Tax

Tax Research

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Partnerships and S Corporations

Taxes and Investment Planning

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