Deck 10: Property Transactions: Capital Gains and Losses

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.

Answer 1

True

Question 2

Losses are generally deductible if incurred in carrying on a trade or business or incurred in an activity engaged in for profit.

Answer 2

True

Question 3

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?

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

Answer 3

C

Question 4

Which one of the following does not affect the adjusted basis of a house held as rental property?

A)depreciation deduction
B)adding a new room to the house
C)painting of more than 50% of the rooms in the home
D)installation of a completely new heating system

Question 5

All realized gains and losses are recognized for tax purposes.

Question 6

If Houston Printing Co.purchases a new printing press during the current year for $30,000,pays sales taxes of $2,000,and pays $1,000 for installation,the cost basis for the printing press is $33,000.

Question 7

The initial adjusted basis of property depends upon how the property is acquired.

Question 8

All recognized gains and losses must eventually be classified either as capital or ordinary.

Question 9

Antonio owns land held for investment with a basis of $28,000.The city of Lafayette exercises the right of eminent domain and Antonio receives a payment of $48,000.What is Antonio's realized gain?

A)$0
B)$20,000
C)$28,000
D)$48,000

Question 10

Michelle purchased her home for $150,000,and subsequently added a garage costing $25,000 and a new porch costing $5,000.Repairs to the home's plumbing cost $1,000.The adjusted basis in the home is

A)$150,000.
B)$151,000.
C)$180,000.
D)$181,000.

Question 11

Will exchanges a building with a basis of $35,000,and subject to a liability of $30,000,for land with a FMV of $50,000 owned by Jane.Jane takes the land subject to the liability.The amount realized by Will is

A)$30,000.
B)$35,000.
C)$50,000.
D)$80,000.

Question 12

Jordan paid $30,000 for equipment two years ago and has claimed total depreciation deductions of $15,600 for the two years.The cost of repairs during the same time period was $2,000 while a major overhaul which extended the life of the equipment cost $7,000.What is Jordan's adjusted basis in the equipment at the end of the two-year period?

A)$14,400
B)$16,400
C)$21,400
D)$30,000

Question 13

Richard exchanges a building with a basis of $35,000,and subject to a liability of $25,000,for land with a FMV of $50,000 owned by Bill.Bill takes the building subject to the liability.What is the amount of Richard's realized gain?

A)$0
B)$15,000
C)$25,000
D)$40,000

Question 14

Rick sells stock of Ty Corporation,which has an adjusted basis of $20,000,for $22,000.He pays a sales commission of $500.In computing his gain or loss,the amount realized by Rick is $1,500.

Question 15

A taxpayer purchased an asset for $50,000 several years ago.He is now planning to sell it.Under the recovery of basis doctrine the taxpayer will not recognize any gain or pay any related taxes unless he sells the asset for more than $50,000.

Question 16

Expenditures which do not add to the value or prolong the life of property may be expensed in the year in which they are incurred.

Question 17

Gains and losses are recognized when property is disposed of by gift or bequest.

Question 18

Courtney sells a cottage at the lake that the family had used for their summer vacations.The purchaser paid Courtney $100,000 and assumed the mortgage which had a principal balance of $50,000.Courtney had purchased the cottage five years ago for $$170,000.Courtney will recognize

A)a gain of $20,000.
B)no gain or loss.
C)a loss of $70,000.
D)a loss of $20,000.

Question 19

Five different capital gain tax rates could apply to long-term capital assets sold by noncorporate taxpayers.

Question 20

On January 1 of this year,Brad purchased 100 shares of stock at $4,000.By December 31 of this year,the stock had declined in value to $2,200,but Brad still held the shares.Brad has realized a $1,800 loss for tax purposes this year.

Question 21

Terra Corp.purchased a new enterprise software system and incurred the following costs: What is Terra Corp.'s basis in the software system?

A)$800,000
B)$805,000
C)$811,000
D)$820,000

Question 22

Dale gave property with a basis of $16,000 to Sarah when it had a FMV of $12,000.No gift taxes were due.Sarah later sold the property for $22,000 resulting in a recognized gain of

A)$0.
B)$4,000.
C)$6,000.
D)$12,000.

Question 23

Funds borrowed and used to pay for an asset are not included in the cost until the borrowed funds are repaid.

Question 24

Dennis purchased a machine for use in his business.Mr.Dennis' costs in connection with this purchase were as follows: What is the amount of Mr.Dennis' basis in the machine?

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

Question 25

An uncle gifts a parcel of land to his niece,and he has to pay $25,000 of gift taxes.The land has appreciated substantially since he purchased it 20 year ago.The niece's basis in the land will be the uncle's cost plus the full $25,000 of gift taxes paid by the uncle.

Question 26

If stock sold or exchanged is not specifically identified,the FIFO (first-in,first-out)method of identification must be used.

Question 27

Rachel holds 110 shares of Argon Mutual Fund.She is planning to sell 90 shares.Her record of the share purchases is noted below.What could be her basis for the 90 shares to be sold for purposes of determining gain?

A)$9,000
B)$9,500
C)$9,409
D)Any of the above could be used as basis for the 90 shares sold.

Question 28

Edward purchased stock last year as follows: In April of this year,Edward sells 80 shares for $250.Edward cannot specifically identify the stock sold.The basis for the 80 shares sold is

A)$160.
B)$184.
C)$216.
D)$240.

Question 29

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

Question 30

Interest incurred during the development and manufacture of a machine must be capitalized.

Question 31

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?

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

Question 32

With regard to taxable gifts after 1976,no gift tax is added to the basis of the property if the donor's basis is greater than the FMV of the property.

Question 33

Capitalization of interest is required if debt is incurred to construct real property.

Question 34

Unless the alternate valuation date is elected,the basis of property received from a decedent is generally the property's fair market value at the date of decedent's death.

Question 35

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?

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

Question 36

For purposes of calculating depreciation,property converted from personal use to business use will take on a basis equal to the greater of its FMV or its adjusted basis on the date of the conversion.

Question 37

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: What is Tony's basis in the car wash equipment?

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

Question 38

Empire Corporation purchased an office building for $500,000 cash on April 1.Prior to renting it out to tenants on July 1,Empire spent $200,000 on materials and labor to renovate the property.It funded $50,000 of the renovation cost with its own funds and borrowed the remaining $150,000.As of July 1,$2,000 of interest had been paid to the bank,but none of the principal had been repaid.The basis of the building on July 1 is

A)$500,000.
B)$700,000.
C)$702,000.
D)$502,000.

Question 39

Allison buys equipment and pays cash of $50,000,signs a note of $10,000 and assumes a liability on the property for $3,000.In addition,Allison pays an installation cost of $500 and a delivery cost of $800.Allison's basis in the asset is

A)$60,000.
B)$63,000.
C)$63,500.
D)$64,300.

Question 40

If the stock received as a nontaxable stock dividend is not the same type as the stock owned prior to the dividend,the allocation of basis is based on relative fair market values of the stock.

Question 41

Billy and Sue are married and live in Texas,a community property state.They jointly own real property with an adjusted basis of $200,000.When the property has a FMV of $450,000,Billy dies leaving all of the property to Sue.If she later sells the property for $650,000,what is Sue's gain on the sale?

A)$200,000
B)$225,000
C)$325,000
D)$450,000

Question 42

Douglas and Julie are a married couple who live in Louisiana,a community property state.They jointly own property with an adjusted basis of $140,000.On December 2 of this year,Julie died when the property had a fair market value of $160,000.Douglas's basis in the property after Julie's death is

A)$0.
B)$140,000.
C)$150,000.
D)$160,000.

Question 43

Brad owns 100 shares of AAA Corporation with a basis of $6,000 and a FMV of $24,000.Brad receives 15 stock rights as a nontaxable distribution with a total FMV of $6,000.Brad allows the stock rights to expire.Brad's loss recognized and the basis of the original 100 shares after expiration of the stock rights is

A)$0 and $4,800.
B)$0 and $6,000.
C)($1,200)and $4,800.
D)($1,200)and $6,000.

Question 44

In 2011 Toni purchased 100 shares of common stock in Blue Corporation for $5,280.In 2012,Blue declared a stock dividend of one share of its common stock for each 10 shares held.This year,2014,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 distributions were tax-free?

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 45

Joycelyn gave a diamond necklace to her granddaughter Emma.Joycelyn had purchased the necklace in 1980 for $15,000.The FMV of the necklace at the time of the gift was $44,000.After deducting the annual exclusion,the amount of the gift was $30,000.Gift taxes of $10,000 were paid.What is Emma's adjusted basis in the necklace?

A)$15,000
B)$24,667
C)$25,000
D)$44,000

Question 46

If a nontaxable stock dividend is received and is not the same type of stock as that owned before the dividend,the original stock's basis is allocated to all shares

A)based on the par value of the stock.
B)equally to all shares owned after the stock dividend.
C)based on relative fair market values at the time of the stock dividend.
D)none of the above.

Question 47

In a community property state,jointly owned property left to the surviving spouse will have a basis after the estate is settled equal to

A)the decedent's basis before death.
B)the total fair market value of the entire property at the date of death (if the alternative valuation date was not elected).
C)half of the fair market value of the entire property at the date of death (if the alternative valuation date was not elected).
D)half of the basis just before death,plus half of the fair market value at the date of death (if the alternative valuation date was not elected).

Question 48

In a common law state,jointly owned property left to the surviving spouse will have a basis after the estate is settled equal to

A)the decedent's basis before death.
B)the total fair market value of the entire property at the date of death (the alternative valuation date was not elected).
C)half of the fair market value of the entire property at the date of death (the alternative valuation date was not elected).
D)half of the basis just before death,plus half of the fair market value at the date of death (the alternative valuation date was not elected).

Question 49

Tina purchases a personal residence for $278,000,but subsequently converts the property to rental property when its FMV is $275,000.Assume depreciation of $65,000 has been deducted after conversion to rental use.If Tina sells the property for $200,000,her realized gain or loss will be

A)($10,000)loss.
B)($13,000)loss.
C)($75,000)loss.
D)($78,000)loss.

Question 50

In the current year,Andrew received a gift of property from his uncle.At the time of the gift,the property had a FMV of $114,000 and an adjusted basis to his uncle of $70,000.After deducting the annual exclusion,the amount of the gift was $100,000.Andrew's uncle paid a gift tax on the property of $24,000.What is the amount of Andrew's basis in the property?

A)$70,000
B)$80,560
C)$94,000
D)$114,000

Question 51

During the current year,Don's aunt Natalie gave him a house.At the time of the gift,the house had a FMV of $144,000 and his aunt's adjusted basis was $133,000.After deducting the annual exclusion,the amount of the gift was $130,000.His aunt paid a gift tax of $20,000 on the house.What is Don's basis in the house for purposes of determining gain?

A)$130,000
B)$133,000
C)$134,692
D)$144,000

Question 52

David gave property with a basis of $133,000 to Hannah when the property had a FMV of $100,000 and paid gift taxes of $8,000.If Hannah later sells the property for $140,000,Hannah's basis (to determine gain)in the property immediately before the sale is

A)$100,000.
B)$108,000.
C)$133,000.
D)$141,000.

Question 53

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

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

Question 54

Jessica owned 200 shares of OK Corporation with a basis of $12,000 and a FMV of $24,000.Jessica received 20 stock rights as a nontaxable distribution with a total FMV of $8,000.Jessica sold the stock rights for $4,000.Jessica's gain or loss on the sale was

A)$1,000.
B)$3,000.
C)$4,000.
D)($4,000).

Question 55

Monte inherited 1,000 shares of Corporation Zero stock from his father who died on March 4 of the current year.His father paid $30 per share for the stock on September 2,2005.The FMV of the stock on the date of death was $50 per share.On September 4 this year,the FMV of the stock was $55 per share.The executor did not elect the alternate valuation date.Monte sold the stock for $65 per share on December 3.What is the amount and nature of any gain or loss?

A)$ 10,000 LTCG
B)$ 35,000 LTCG
C)$ 15,000 LTCG
D)$ 15,000 STCG

Question 56

Jamahl and Indira are married and live in a common law state.They jointly own real property with an adjusted basis of $200,000.When the property has a FMV of $450,000,Jamahl dies leaving all of the property to Indira.If she later sells the property for $700,000,what is Indira's gain on the sale?

A)$250,000
B)$475,000
C)$375,000
D)$500,000

Question 57

Bob owns 100 shares of ACT Corporation common stock with a basis of $3,500 and a FMV of $12,000.Bob receives 10 stock rights as a nontaxable distribution,and no basis is allocated to the stock rights.With each stock right,Bob may acquire one share of stock for $25.Bob exercises all 10 stock rights.The total basis of the newly acquired stock is

A)$ 0.
B)$ 250.
C)$ 350.
D)$1,200.

Question 58

Josh purchases a personal residence for $278,000 but subsequently converts the property to rental property when its FMV is $275,000.Assume depreciation of $65,000 has been deducted after conversion to rental use.If Josh sells the property for $280,000,his gain or loss will be

A)$2,000 gain.
B)$5,000 gain.
C)$67,000 gain.
D)$70,000 gain.

Question 59

Melody inherited 1,000 shares of Corporation Zappa stock from her mother who died on March 4 of the current year.Her mother paid $30 per share for the stock on September 2,2005.The FMV of the stock on the date of death was $65 per share.On September 4 of the current year,the FMV of the stock was $70 per share.Melody sold the stock for $85 per share on December 3.The estate qualified for,and the executor elected,the alternate valuation method for these and other assets in the estate.An estate tax return was filed.What was Melody's basis in the stock on the date of the sale?

A)$ 30,000
B)$ 65,000
C)$ 70,000
D)$ 85,000

Question 60

Dustin purchased 50 shares of Short Corporation for $500.During the current year,Short declared a nontaxable 10% stock dividend.What is the basis per share before and after the stock dividend is distributed?

A)
B)
C)
D)

Question 61

Adjusted net capital gain is taxed at 15% for taxpayers with marginal tax rates of 15% or higher,but less than 39.6%.

Question 62

Distinguish between the Corn Products doctrine and the ruling in the Arkansas Best Corporation case.

Question 63

If a capital asset held for one year or more is sold at a gain,the gain is classified as long-term capital gain.

Question 64

Joy purchased 200 shares of HiLo Mutual Fund on July 15,2011,for $10,500,and has been reinvesting dividends.On December 15,2015,she sells 100 shares. What is the basis for the shares sold assuming (1)FIFO and (2)average cost method?

Question 65

Emma Grace acquires three machines for $80,000,which have FMVs of $32,000,$28,000,and $20,000 respectively.The delivery cost is $500,and installation costs amount to $2,500.What is the basis of each machine?

Question 66

All of the following are capital assets with the exception of

A)personal residence.
B)corporate stock held for investment.
C)equipment used in a trade or business.
D)a Rembrandt painting held in a private collection.

Question 67

Which one of the following is a capital asset?

A)automobile held by car dealer for sale
B)automobile used for personal purposes
C)automobile used in taxpayer's trade or business
D)B and C only

Question 68

Mike,a dealer in securities and calendar-year taxpayer,purchased a security for inventory on November 18,2014 for $15,000.The FMV on December 31,2014 was $16,000.The security was sold on December 19,2015 for $16,500.These transactions result in

A)$0 ordinary income in 2014; $1,500 ordinary income in 2015.
B)$0 ordinary income in 2014; $1,500 LTCG in 2015.
C)$1,000 ordinary income in 2014; $500 LTCG in 2015.
D)$1,000 ordinary income in 2014; $500 ordinary income in 2015.

Question 69

Donald has retired from his job as a corporate manager.He buys and sells stocks on a daily basis.He spends 8-9 hours daily studying prospective stock purchases and market news.What tax issues should Donald consider?

Question 70

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

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

Question 71

Normally,a security dealer reports ordinary income on the sale of securities unless it is specifically identified as a security being held for investment.

Question 72

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

Question 73

In 2006,Regina purchased a home in Las Vegas which cost $280,000.Due to increase in the market value of the home,she refinanced her mortgage and her debt on the home totaled $300,000 at the end of 2007.Regina accepted a new job in Dallas in April 2013.Unable to sell her home,she rented it in November 2013,at which time its fair market value was $240,000.In June,2015,she sold the home for $230,000.What tax issues should Regina consider?

Question 74

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.

Question 75

Section 1221 of the Code includes a comprehensive list of assets properly classified as capital assets.

Question 76

Gina owns 100 shares of XYZ common stock with a $12,000 basis and a $25,000 FMV.She receives 100 stock rights with a total FMV of $15,000.Answer the following:
a.What is the basis of the 100 shares of stock?
b.What is the basis of the 100 stock rights?

Question 77

Net long-term capital gains receive preferential tax treatment if they exceed net short-term capital losses.

Question 78

Bad debt losses from nonbusiness debts are deductible as short-term or long-term capital losses depending on how long the debt was outstanding.

Question 79

A building used in a trade or business is a capital asset.

Question 80

Armanti received a football championship ring in college.During difficult economic times,Armanti sold the ring at a pawn shop.What are the tax issues of the sale to Armanti?