Question 1

A franchisor licenses its mode of business operation to a franchisee.

Accepted Answer

A) True 
 B)False  True

Question 2

A business taxpayer sold all the depreciable assets of the business,calculated the gains and losses,and would like to know the final character of those gains and losses.The taxpayer had $353,000 of adjusted gross income before considering the gains and losses from sale of the business assets.The taxpayer had unrecaptured § 1231 lookback loss of $12,000.What is the treatment of the gains and losses summarized in the chart below after all possible netting and reclassification has been completed? What is the taxpayer's adjusted gross income? (Ignore the self-employment tax deduction.)

Accepted Answer

The taxpayer has adjusted gross income of $491,000 after including the effect of the property transactions.Machine #1's $66,000 gain is all ordinary income due to § 1245 depreciation recapture.Machine #3's $23,000 gain is all ordinary income due to § 1245 depreciation recapture.Machine #4 has $28,000 of ordinary income due to § 1245 depreciation recapture (equals depreciation taken)and $36,000 § 1231 gain ($64,000 - $28,000).Machine #2's $15,000 loss is a § 1231 loss.There is a $21,000 net § 1231 gain ($36,000 gain - $15,000 loss)for the year.The $12,000 § 1231 unrecaptured lookback loss converts $12,000 of this gain to ordinary income,leaving $9,000 of the net § 1231 gain to be treated as long-term capital gain.The net ordinary gain for the year is $129,000 ($66,000 + $23,000 + $28,000 + $12,000).Adjusted gross income is $491,000 ($353,000 + $129,000 + $9,000).

Question 3

Stella purchased vacant land in 2006 that she subdivided for resale as lots.All 10 of the lots were sold during 2013.The lots had a tax basis of $12,000 each and sold for $35,000 each.Stella made no substantial improvements to the lots.She acted as her own real estate broker; so there were no sales expenses for selling the lots.Which of the following statements is correct?

Accepted Answer

A) Stella must hold the lots for at least 10 years before she is eligible for the special capital gain treatment of § 1237. 
B) The $230,000 gain from the sale of the ten lots is all ordinary income. 
C) All of the $230,000 gain from the sale of the ten lots is long-term capital gain. 
D) To be eligible for the special capital gain treatment of § 1237,Stella must be a real estate dealer. 
E) None of the above. 
A) Stella must hold the lots for at least 10 years before she is eligible for the special capital gain treatment of § 1237. 
B) The $230,000 gain from the sale of the ten lots is all ordinary income. 
C) All of the $230,000 gain from the sale of the ten lots is long-term capital gain. 
D) To be eligible for the special capital gain treatment of § 1237,Stella must be a real estate dealer. 
E) None of the above. E

Question 4

Spencer has an investment in two parcels of vacant land.Parcel 1 is a capital asset and parcel 2 is a § 1231 asset.Spencer already has short-term capital loss for the year he would like to offset with capital gain.Spencer has § 1231 lookback loss that exceeds the gain from the disposition of either land parcel.Spencer only wants to sell one land parcel and each of them would yield the same amount of gain.The gain that would be recognized exceeds the short-term capital loss Spencer already has.Which of the statements below is correct?

Accepted Answer

A) Spencer will have a net capital loss no matter which land parcel he sells. 
B) Spencer will have a net capital loss if he sells parcel 2. 
C) Spencer will have a net capital loss if he sells parcel 1. 
D) Spencer will have a net capital gain if he sells either parcel 1 or parcel 2. 
E) None of the above. 
A) Spencer will have a net capital loss no matter which land parcel he sells. 
B) Spencer will have a net capital loss if he sells parcel 2. 
C) Spencer will have a net capital loss if he sells parcel 1. 
D) Spencer will have a net capital gain if he sells either parcel 1 or parcel 2. 
E) None of the above.

Question 5

A security that was purchased by an individual and qualifies as § 1244 stock becomes worthless.The taxpayer is single and the loss is $30,000.The loss is treated as an ordinary loss.

Accepted Answer

A) True 
 B)False

Question 6

A business machine purchased April 10,2012,for $62,000 was fully depreciated in 2012 using § 179 immediate expensing.On August 15,2013,the sole proprietor who owned the machine gave it to his son.On that date,the machine's fair market value was $57,000.The son did not use the machine in business or hold it as inventory and the machine was sold on November 22,2013,for $53,000.What is the amount and nature of the gain or loss from disposition of the machine?

Accepted Answer

A gift does not extinguish potential § 1

Question 7

If a capital asset is sold at a gain,the holding period is important.

Accepted Answer

A) True 
 B)False

Question 8

When a patent is transferred,the most common forms of payment received by the transferor are a lump sum and/or periodic payment.

Accepted Answer

A) True 
 B)False

Question 9

Hiram is a computer engineer and,while unemployed,invents a switching device for computer networks.He patents the device,but does not reduce it to practice.Hiram has a zero tax basis for the patent.In consideration of $800,000 plus a $1 royalty per device sold,Hiram assigns the patent to a computer manufacturing company.Hiram assigned all substantial rights in the patent.Which of the following is correct?

Accepted Answer

A) Hiram automatically has long-term capital gain from the lump sum payment,but not from the royalty payments. 
B) Hiram automatically has long-term capital gain from the royalty payments,but not from the lump sum payment. 
C) Hiram automatically has long-term capital gain from both the lump sum payment and the royalty payments. 
D) Hiram does not have automatic long-term capital gain from either the lump sum payment or the royalty payments. 
E) None of the above. 
A) Hiram automatically has long-term capital gain from the lump sum payment,but not from the royalty payments. 
B) Hiram automatically has long-term capital gain from the royalty payments,but not from the lump sum payment. 
C) Hiram automatically has long-term capital gain from both the lump sum payment and the royalty payments. 
D) Hiram does not have automatic long-term capital gain from either the lump sum payment or the royalty payments. 
E) None of the above.

Question 10

Lynne owns depreciable residential rental real estate which has accumulated depreciation (all from straight-line)of $65,000.If Lynne sold the property,she would have a $53,000 gain.The initial characterization of the gain would be:

Accepted Answer

A) Section 1245 gain. 
B) Section 1231 gain. 
C) Section 1250 gain. 
D) Section 1239 gain. 
E) None of the above. 
A) Section 1245 gain. 
B) Section 1231 gain. 
C) Section 1250 gain. 
D) Section 1239 gain. 
E) None of the above.

Question 11

Larry was the holder of a patent on a video game.During 2013,he sold all substantial rights in the patent for $365,000 in cash and a 3% royalty on the purchaser's first $10,200,000 of sales each year related to the product in which the patent is incorporated.Larry had not reduced the patent to practice.He had a $86,000 basis for the patent.During 2013,he received $30,000 in royalties.What is the nature and amount of Larry's gain?

Accepted Answer

Larry was the holder of a patent and tra

Question 12

On June 10,2013,Ebon,Inc.acquired an office building as a result of a like-kind exchange.Ebon had given up a factory building that it had owned for 26 months as part of the like-kind exchange.Which of the statements below is correct?

Accepted Answer

A) The holding period of the factory building includes the holding period of the office building. 
B) The holding period of the office building starts on June 11,2013. 
C) The holding period of the office building starts on June 10,2013. 
D) The holding period of the office building includes the holding period of the factory building. 
E) None of the above. 
A) The holding period of the factory building includes the holding period of the office building. 
B) The holding period of the office building starts on June 11,2013. 
C) The holding period of the office building starts on June 10,2013. 
D) The holding period of the office building includes the holding period of the factory building. 
E) None of the above.

Question 13

Individuals who are not professional real estate developers may get capital gain treatment for sale of their real property if they engage only in limited development activities.

Accepted Answer

A) True 
 B)False

Question 14

When an individual taxpayer has a net long-term capital gain that includes both 28% gain and 0%/15%/20% gain,which of these gains will be taxed first when the alternative tax on net long-term capital gain method is used and what difference does it make?

Accepted Answer

The 28% gain is taxed after the regular

Question 15

Orange Company had machinery destroyed by a fire on December 23,2013.The machinery had been acquired on April 1,2011,for $49,000 and its adjusted basis was $14,200.The machinery was completely destroyed and Orange received $30,000 of insurance proceeds for the machine and did not replace it.This was Orange's only casualty or theft event for the year.As a result of this event,Orange has:

Accepted Answer

A) $4,200 ordinary loss. 
B) $15,800 § 1245 recapture gain. 
C) $14,200 § 1245 recapture gain. 
D) $30,000 § 1231 gain. 
E) None of the above. 
A) $4,200 ordinary loss. 
B) $15,800 § 1245 recapture gain. 
C) $14,200 § 1245 recapture gain. 
D) $30,000 § 1231 gain. 
E) None of the above.

Question 16

Jambo invented a new flexible cover for a popular brand of cellphone,but did not have the finances to begin production of the cover.Instead,he sold all his rights to the invention (after patenting it)for $450,000 plus $.10 for each cover sold by the company that purchased the patent.Jambo had a zero tax basis for the invention.What is the character of his gain from disposition of the patent?

Accepted Answer

Jambo is the holder of a patent because

Question 17

Vanna owned an office building that had been held more than one year when it was sold for $567,000.The real estate had an adjusted basis of $45,000 for the land and $233,000 for the building.Straight-line depreciation of $162,000 had been taken on the building.What is the amount and initial character of the gain or loss from disposition of the real estate? Is any of the gain unrecaptured § 1250 (25%)gain?

Accepted Answer

The real estate was used in business and

Question 18

Sharon has the following results of netting her short-term and long-term capital gains and losses for 2013: $56,000 short-term capital loss,and $82,000 net long-term capital gain ($21,000 0%/15%/20% long-term capital gain,and $61,000 25% long-term capital gain).
 (a) What is her net capital gain or loss for 2013?
(b) If there is a net capital loss, how much of the loss and what type of loss camies over to 2014?
(c) If there is a net long-term capital gain what is it made up of?

Accepted Answer

@#LAT-DLM&
(b) There is no net capital l

Question 19

Lease cancellation payments received by a lessor are always ordinary income because they are considered to be in lieu of rental payments.

Accepted Answer

A) True 
 B)False

Question 20

In 2012,Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction.In 2013,Jenny has a $18,000 0%/15%/20% long-term capital gain and no other capital gain or loss transactions.Which of the statements below is correct?

Accepted Answer

A) Jenny has a 2013 $18,000 net capital gain. 
B) Jenny has a 2013 $9,000 net capital gain. 
C) Jenny has a 2013 $9,000 net capital loss. 
D) Jenny has a 2013 $3,000 capital loss deduction. 
E) Jenny has a 2013 $9,000 capital loss deduction. 
A) Jenny has a 2013 $18,000 net capital gain. 
B) Jenny has a 2013 $9,000 net capital gain. 
C) Jenny has a 2013 $9,000 net capital loss. 
D) Jenny has a 2013 $3,000 capital loss deduction. 
E) Jenny has a 2013 $9,000 capital loss deduction.

A franchisor licenses its mode of business operation to a franchisee.

A security that was purchased by an individual and qualifies as § 1244 stock becomes worthless.The taxpayer is single and the loss is $30,000.The loss is treated as an ordinary loss.

If a capital asset is sold at a gain,the holding period is important.

When a patent is transferred,the most common forms of payment received by the transferor are a lump sum and/or periodic payment.

Lynne owns depreciable residential rental real estate which has accumulated depreciation (all from straight-line)of $65,000.If Lynne sold the property,she would have a $53,000 gain.The initial characterization of the gain would be:

On June 10,2013,Ebon,Inc.acquired an office building as a result of a like-kind exchange.Ebon had given up a factory building that it had owned for 26 months as part of the like-kind exchange.Which of the statements below is correct?

Individuals who are not professional real estate developers may get capital gain treatment for sale of their real property if they engage only in limited development activities.

When an individual taxpayer has a net long-term capital gain that includes both 28% gain and 0%/15%/20% gain,which of these gains will be taxed first when the alternative tax on net long-term capital gain method is used and what difference does it make?

Lease cancellation payments received by a lessor are always ordinary income because they are considered to be in lieu of rental payments.

In 2012,Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction.In 2013,Jenny has a $18,000 0%/15%/20% long-term capital gain and no other capital gain or loss transactions.Which of the statements below is correct?

Introduction to Taxation

Working With the Tax Law

Taxes on the Financial Statements

Gross Income

Business Deductions

Losses and Loss Limitations

Property Transactions: Basis, gain and Loss, and Nontaxable Exchange

Corporations: Organization, capital Structure, and Operating Rules

Corporations: Earnings Profits and Distributions

Partnerships and Limited Liability Entities

S Corporations

Multijurisdictional Taxation

Business Tax Credits and Corporate Alternative Minimum Tax

Comparative Forms of Doing Business

Introduction to the Taxation of Individuals

Individuals As Employees and Proprietors

Filters

Exam 8: Property Transactions: Capital Gains and Losses, section 1231, and Recapture Provisions

A franchisor licenses its mode of business operation to a franchisee.

A security that was purchased by an individual and qualifies as § 1244 stock becomes worthless.The taxpayer is single and the loss is $30,000.The loss is treated as an ordinary loss.

If a capital asset is sold at a gain,the holding period is important.

When a patent is transferred,the most common forms of payment received by the transferor are a lump sum and/or periodic payment.

Lynne owns depreciable residential rental real estate which has accumulated depreciation (all from straight-line)of $65,000.If Lynne sold the property,she would have a $53,000 gain.The initial characterization of the gain would be:

On June 10,2013,Ebon,Inc.acquired an office building as a result of a like-kind exchange.Ebon had given up a factory building that it had owned for 26 months as part of the like-kind exchange.Which of the statements below is correct?

Individuals who are not professional real estate developers may get capital gain treatment for sale of their real property if they engage only in limited development activities.

When an individual taxpayer has a net long-term capital gain that includes both 28% gain and 0%/15%/20% gain,which of these gains will be taxed first when the alternative tax on net long-term capital gain method is used and what difference does it make?

Lease cancellation payments received by a lessor are always ordinary income because they are considered to be in lieu of rental payments.

In 2012,Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction.In 2013,Jenny has a $18,000 0%/15%/20% long-term capital gain and no other capital gain or loss transactions.Which of the statements below is correct?

Introduction to Taxation

Working With the Tax Law

Taxes on the Financial Statements

Gross Income

Business Deductions

Losses and Loss Limitations

Property Transactions: Basis, gain and Loss, and Nontaxable Exchange

Corporations: Organization, capital Structure, and Operating Rules

Corporations: Earnings Profits and Distributions

Partnerships and Limited Liability Entities

S Corporations

Multijurisdictional Taxation

Business Tax Credits and Corporate Alternative Minimum Tax

Comparative Forms of Doing Business

Introduction to the Taxation of Individuals

Individuals As Employees and Proprietors

Filters