Exam 16: Property Transactions: Capital Gains and Losses

Larry was the holder of a patent on a video game. During 2017, 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 2017, he received $30,000 in royalties. What is the nature and amount of Larry's gain?

Sharon has the following results of netting her short-term and long-term capital gains and losses for 2017: $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).

On January 10, 2017, Wally sold an option for $2,000 on vacant land he held as an investment. He had purchased the land in 2013 for $76,000. The option allowed the option holder to purchase the property for $122,000 plus the cost of the option. On March 1, 2017, the option holder exercised the option. What is the amount and nature of Wally's gain or loss from disposition of the land?

Ranja acquires $200,000 face value corporate bonds for $186,000 when the bonds are issued. He holds the bonds as an investment for two years and then sells them for $198,000. He amortizes $2,000 of the OID. What tax issues does Ranja have with respect to these bonds?

Harold is a head of household, has $27,000 of taxable income in 2017 from non-capital gain or loss sources, and has the following capital gains and losses: ​ Ignore standard deductions and exemptions. What is Harold's taxable income and the tax on that taxable income?

The chart below details Sheen's 2015, 2016, and 2017 stock transactions. What is the capital loss carryover to 2017 and what is the net capital gain or loss for 2017?

"Collectibles" held long-term and sold at a gain are subject to maximum tax rate of 28%. An individual taxpayer recently sold an antique car for $40,000. The car had been held for several years and $30,000 was originally paid for it. Explain why the car is or is not a collectible.

Willie is the owner of vacant land that he purchased in 2013 for $1,400,000 and held for investment. On January 22, 2016, he was paid $145,000 for a thirteen-month option on the land by Susan. Susan 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 and the option expired on February 22, 2017. (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?

If the holder of an option fails to exercise the option, the lapse of the option is considered a sale or exchange on the option expiration date.

Gold Company signs a 13-year franchise agreement with Silver. Silver retained significant powers, rights, and a continuing interest. Gold Company (the franchisee) makes noncontingent payments of $18,000 per year for the first four years of the franchise. Gold Company also pays a contingent fee of 2% of gross sales every month. Which of the following statements is correct?

Ramon is in the business of buying and selling securities. Which of the following is a capital asset for Ramon?

An individual taxpayer received a valuable painting from his uncle, a famous painter. The painter created the painting. After the taxpayer held the painting for two years, he sold it for a $400,000 gain. The gain is a long-term capital gain.

Lana purchased for $1,410 a $2,000 bond when it was issued two years ago. Lana amortized $200 of the original issue discount and then sold the bond for $1,800. Which of the following statements is correct?

Judith (now 37 years old) owns a collection of porcelain dolls that she acquired when she was a grade schooler. She had forgotten about them until her mother sent them to her. Her mother had discovered them in a box in her attic while she was cleaning out her house before selling it. Judith had originally acquired all the dolls as gifts from her parents, so she has no way to establish a basis for the dolls. Using information from the Internet, she prepares a careful inventory of the dolls that includes their name, when they were first available for sale, their current value, and other pertinent information. She then lists them for sale on the Internet. To her surprise, she quickly gets an offer of $5,000 for all of them and sells them. Judith has no other gain or loss transactions for the year and is in the 28% marginal tax bracket. What issues do these facts create?

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

To compute the holding period, start counting on the day after the property was acquired and include the day of disposition.

Samuel, head of household with two dependents, has 2017 wages of $26,000, paid alimony of $3,000, has taxable interest income of $2,000, and a $12,000 0%/15%/20% net long-term capital gain. Samuel uses the standard deduction and is age 38. What is his 2017 taxable income and the tax on the taxable income?

Mike is a self-employed TV technician. He is usually paid as soon as he completes repairs, but occasionally bills a customer with payment expected within 30 days. At the end of the year he has $2,500 of receivables outstanding. He expects to collect $1,200 of this and write off the remainder. Mike is a cash basis taxpayer and had net earnings from his business (not including the effect of the items above) of $55,000. He also had $3,500 interest income, $200 gambling winnings, and sold corporate stock for $7,000. The stock had been purchased in 2013 for $8,200. Mike is single, has no dependents, and claims the standard deduction. What is his 2017 taxable income? (Ignore the self-employment tax deduction.)

A lease cancellation payment received by a lessee is generally treated as an exchange because the lease extinguished is usually a capital asset.

For tax purposes, there is no original issue discount on a bond unless the bond is issued for less than its face value and the difference between the face value and the bond issue price is at least one-fourth of 1 percent of the redemption price at maturity multiplied by the number of years to maturity.