Exam 16: Property Transactions: Capital Gains and Losses

Phil's father who died on January 10, 2019 had owned stock for 20 years with a basis of $45,000 that was transferred to Phil as a gift on August 10, 2018, when the stock was worth $430,000.Phil's father had paid no gift taxes.This stock was worth $566,000 at the date of the father's death.Phil sold the stock for $545,000 net of commissions on February 23, 2019.What is the amount and nature of his gain or loss from disposition of this property?

Violet, Inc., has a 2019 $80,000 long-term capital gain included in its $285,000 taxable income.Which of the following is correct?

An individual taxpayer has a $2,500 short-term capital loss for the year.The taxpayer, who has significant taxable income from other sources, could sell stock and generate a $2,500 long-term capital gain.Explain the impact on the taxpayer's taxable income if he did or did not sell the stock.

Willie is the owner of vacant land that he purchased in 2015 for $1,400,000 and held for investment.On January 22, 2018, he was paid $145,000 for a 13-month option on the land by Susan.She could buy the land for an additional $1,200,000 by exercising the option.Susan had hoped to build a luxury home on the land but was unable to get approval to build a big enough home to satisfy her needs.Consequently, Susan did not exercise her option, which expired on February 22, 2019.(1) What is Willie's basis, gain or loss, and type of gain or loss from these events? (2) What is Susan's basis, gain or loss, and type of gain or loss from these events?

In 2019, Mark has $18,000 short-term capital loss, $7,000 28% gain, and $6,000 0%/15%/20% gain.Which of the following statements is correct?

On January 18, 2018, Martha purchased 200 shares of Blue Corporation stock for $2,000.On November 11, 2019, she sold short 200 shares of Blue stock, which she borrowed from her broker for $2,300.On February 10, 2020, Martha closed the short sale by delivering the 200 shares of Blue stock which she had acquired in 2018.On that date, Blue stock had a market price of $4 per share.What is Martha's recognized gain or loss and its character in 2019? In 2020?

On June 1, 2019, Brady purchased an option to buy 1,000 shares of General, Inc.at $40 per share.He purchased the option for $3,000.It was to remain in effect for five months.The market experienced a decline during the latter part of the year, so Brady decided to let the option lapse as of December 1, 2019.On his 2019 tax return, what should Brady report?

The tax law requires that capital gains and losses be separated from other types of gains and losses because there are limitations on the deduction of net capital losses.

A corporation has a $50,000 short-term capital loss for the year.The corporation has $1,200,000 of taxable income from other sources.The taxable income for the year is $1,200,000.

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.He assigns all substantial rights in the patent.Which of the following is correct?

Short-term capital gain is eligible for a special tax rate only when it exceeds long-term capital gain.

Which of the following events causes the purchaser of an option to add its cost to the basis of the property to which the option relates?

Cason is filing as single and has 2019 taxable income of $36,000 which includes $34,000 0%/15%/20% net long-term capital gain.What is his tax on taxable income using the alternative tax method? Note: Use the tax rate schedule rather than the tax table.

Confusingly, §1221 defines what is not a capital asset.

Ryan has the following capital gains and losses for 2019: $6,000 STCL, $5,000 28% gain, $2,000 25% gain, and $6,000 0%/15%/20% gain.Which of the following is correct:

In 2019, Satesh has $5,000 short-term capital loss, $13,000 0%/15%/20% long-term capital gain, and $7,000 qualified dividend income.Satesh is single and has other taxable income of $15,000.Which of the following statements is correct?

In 2018, Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction.In 2019, 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 for 2019?

Jambo invented a new flexible cover for a popular brand of cell phone, but did not have the finances to produce it. Instead, he sold all his rights to the invention (after patenting it) for $450,000 plus $0.10 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?

Which of the following is correct concerning short sales of stock at the time the short sale is made?

Tom has owned 40 shares of Orange Corporation stock for five years.He sells the stock short for a total of $1,100. One month later, he closes the short sale by purchasing and delivering 40 shares of Orange Corporation stock for a total of $600.Tom has a $500 short-term capital gain.