Deck 7: Capital Gains and Other Sales of Property Schedule D and Form 4797

Question 1

If the taxpayer's aggregate Section 1231 gains for the year exceed aggregate Section 1231 losses for the year,all such gains and losses are considered to be ordinary.

Answer 1

False

Question 2

If a taxpayer has a net Section 1231 loss for the year,all Section 1231 gains and losses are treated as being capital gains and losses.

Answer 2

False

Question 3

Inventory on hand at the end of the year is Section 1231 property.

Answer 3

False

Question 4

A computer used exclusively in a sole proprietor's business is a capital asset.

Question 5

The basis of inherited property to the beneficiary is the FMV at the date of death or alternate valuation date.

Question 6

To qualify as Section 1231 property,the property must be used in a taxpayer's trade or business and must be held for more than one year.

Question 7

Property owned by a taxpayer and used either for personal purposes,investment,or in a trade or business is a capital asset.

Question 8

Real property held for investment is a capital asset.

Question 9

Currently,the maximum capital gain rate applied to a taxpayer in the 15% regular tax bracket is 0%.

Question 10

If Section 1231 losses exceed Section 1231 gains,the excess is treated as an ordinary loss.

Question 11

If the property's fair market value at the date of the gift is lower than the adjusted basis,then the property's basis for determining loss is its fair market value on that date.

Question 12

The holding period of an asset starts on the date acquired and ends on the day the asset is sold.

Question 13

When the buyer assumes the seller's liability,the seller includes this amount in computing the amount realized from the sale.

Question 14

Short-term capital losses first reduce 28% gains,then 25% gains,and if any loss remains,the 20%,15% or 0% group.

Question 15

Unused capital losses in any one year carry forward indefinitely to offset any future short-term or long-term gains.

Question 16

The forms used to report a gain or loss on the sale of an asset depend on the classification of the asset being sold rather than on how the asset was used prior to sale.

Question 17

The holding period for property acquired by inheritance begins on the date of the decedent's death.

Question 18

The donee's basis in depreciated property when the FMV at the time of the gift is less than the donor's basis)is FMV at the time of the gift.

Question 19

Section 1202 allows for an exclusion of up to 50% of the eligible gain on the sale or exchange of qualified small business stock if held for more than one year.

Question 20

The purpose of Code Sections 1245 and 1250 recapture provisions is to restrict the possibility of converting ordinary income into capital gains through use of depreciation deductions.

Question 21

In general,the basis of property purchased is the cost of the asset including cash,debt obligations,and other property or services included in acquiring the asset.

Question 22

The taxpayer always reports a worthless security as a long-term capital loss in the year the security becomes worthless.

Question 23

The amount realized from a sale or trade of property is the amount received for the asset minus the basis that will be recognized for tax purposes.

Question 24

When a Section 1231 asset is sold,the gain can be either classified as an ordinary or capital gain.

Question 25

If the taxpayer has capital gain distributions from a mutual fund and no other capital gain transactions for the year,a Schedule D is not required to be prepared.

Question 26

A taxpayer who receives only one form 1099-B from the sales of stock can enter the transaction directly to Schedule D.

Question 27

Any Section 1245 gain is recognized as "ordinary" to the extent of the depreciation taken.

Question 28

Ordinary gains or losses produced outside the normal course of business relate to the sale of business property held less than one year and do not include the sale of accounts receivable.

Question 29

To figure the gain or loss from the sale of property received as a gift,the donee must know the donor's adjusted basis as well as the FMV at the date of the gift.

Question 30

If land were an investment held in a trade or business,the gain or loss would be reported on Schedule D.

Question 31

All gains and losses on the sale of property that was held for more than one year is subject to preferential tax rates.

Question 32

All net losses exceeding the $3,000 per year are carried over as long-term losses because they will have occurred more than one year ago.

Question 33

Capital assets are usually defined by the IRC as any asset used for personal or investment purposes and sometimes are defined by the IRC as what they are not.

Question 34

The 25% bracket is a special rate that relates to capital gains from Section 1250 property used in a trade or business.

Question 35

The basis of property transferred to a taxpayer from a spouse or former spouse incident to a divorce is the FMV of the property at the date the divorce was final.

Question 36

For sales of Section 1231 business property,long-term gains are taxed at preferential rates while long-term losses are considered ordinary losses and deductible in the year they are incurred.

Question 37

To figure the gain or loss from the sale of property received as a gift,the donor's adjusted basis at the time of the gift is the basis to the donee.

Question 38

If a taxpayer cannot specifically identify which shares of stock were sold,the average cost of all shares held is used as the adjusted basis of the shares that were sold.

Question 39

A taxpayer can deduct a loss on a security when the market price of the stock is less than the basis at the end of the year.

Question 40

Section 1221 assets are any asset used in a trade or business.

Question 41

The top tax rates for an individual with long-term capital gains on the sale of stock and on the sales of collectibles,sold after December 31,2012 are:

A)0%,15%.
B)25%,28%.
C)15%,25%.
D)20%,28%.

Question 42

The gain or loss on land sold within one year of purchase is recorded on which one of the following forms or schedules?

A)Form 4797 if the sale was an asset held for investment purposes by a taxpayer who is a sole proprietor.
B)Schedule C if the sale was an asset used in a trade or business of a sole proprietorship.
C)Schedule D if the sale was an asset used in a trade or business by a sole proprietor who also files a Schedule C.
D)Form 4797 if the sale was an asset used in a trade or business by a sole proprietor.

Question 43

Gilberto invested in a mid-size local company with gross assets of $16,000,000.Gilberto purchased 1,000 shares for $48,000 in 2000.In 2016,Gilberto sold the stock for $78,000.How is the gain treated for tax purposes?

A)$15,000 excluded from gross income under Section 1202 and $15,000 taxed at 28%.
B)$15,000 excluded from gross income under Section 1202 and $15,000 taxed at preferential rates.
C)$15,000 excluded from gross income under Section 1202 with the remaining gain recognized and taxed at regular tax rates.
D)$30,000 capital gain,taxed at preferential rates.

Question 44

Before the tax implications of asset sales can be determined,which of the following must be determined?

A)the length of time the taxpayer owned the property.
B)assets must be classified as either personal,trade or business,or investment assets.
C)whether the assets are subject to depreciation.
D)all of these.

Question 45

What is the basis of artistic works that have been gifted to another by the creator?

A)Artistic works are capital assets to the creator if they are sold to an unrelated person.
B)Artistic works are not capital assets for the creator or the recipient of the artistic works if given as a gift.
C)Artistic works are capital assets if they were available for sale in an art gallery.
D)Artistic works are not capital assets for the creator but are capital assets in the hands of the recipient if the creator gave the artistic works as a gift.

Question 46

Glenn sells a piece of equipment used in his business for $31,500.The equipment was purchased on July 1,2014,at a cost of $22,000.Glenn has taken $6,600 of depreciation on the equipment.What are the amount and classification of the gain on the sale by Glenn?

A)$16,100 ordinary income under Section 1245.
B)$9,500 Section 1231 gain.
C)$16,100 Section 1231 gain.
D)$6,600 ordinary income under Section 1245 and $9,500 Section 1231 gain.

Question 47

Which of the following statements is correct regarding the sale of ordinary assets?

A)the sale of business property held for more than a year is a sale of an ordinary asset.
B)the sale of inventory for a profit is considered to be a sale of an ordinary asset.
C)the sale of any business property regardless of holding period is a sale of an ordinary asset.
D)the sale of an asset outside the normal course of a trade or business is a sale of an ordinary asset.

Question 48

A taxpayer has 6 separate capital gain transactions.Four of them are long-term and two are short-term transactions.Two of the long-term transactions have box 3 from Form 1099-B checked,one does not have box 3 from Form 1099-B checked,and there was no 1099-B received for one of the long-term transactions.One short-term transaction has box 3 from a 1099-B checked and the other transaction does not have box 3 from a 1099-B checked.How many Form 8949 must the taxpayer complete?

A)1)
B)2)
C)3)
D)4)

Question 49

Marquez purchased some equipment for $58,750 on August 15,2015.He decided he did not need the equipment so he sold it on June 13,2016 for $56,500.The equipment was subject to depreciation of $6,964 for 2015 and 2016.What gain or loss will Marquez recognize on the sale of the equipment?

A)$4,714 capital gain.
B)$2,250 capital loss.
C)$2,250 ordinary loss.
D)$4,714 ordinary gain.

Question 50

A taxpayer purchased land in 2008 for $85,000 and sold it in 2016 for $75,000 cash.The buyer also assumed the mortgage of $5,000.What is the amount of gain/loss on the sale of the land?

A)$5,000 gain.
B)$15,000 gain.
C)$20,000 loss.
D)$5,000 loss.

Question 51

On which form or schedule is the selling of inventory related to the course of business recorded for a sole proprietor?

A)Schedule SE.
B)Schedule C.
C)Schedule D.
D)Form 4797.

Question 52

Section 1231 property is:

A)Property used in a trade or business that is subject to depreciation and is held for more than one year.
B)Property used in a trade or business that may or may not be subject to depreciation and held for less than one year.
C)Property used in a trade or business that may or may not be subject to depreciation and is held for more than one year.
D)All property used in a trade or business regardless of how long the asset is held.

Question 53

Patrice sells a parcel of land for $50,000 cash and the buyer assumes Patrice's liability of $7,000 on the land.Patrice's basis in the land is $40,000.What is the gain or loss she will recognize on the sale?

A)$17,000 loss.
B)$3,000 gain.
C)$10,000 gain.
D)$17,000 gain.

Question 54

Juanita is a sole proprietor who has some outstanding receivables she wishes to sell.The receivables have a $16,000 FMV and a basis of $10,000.Juanita sells the receivables for $12,500.What gain or loss does Juanita recognize on the sale?

A)$3,500 capital loss.
B)$2,500 ordinary gain.
C)$2,500 capital gain.
D)$3,500 ordinary loss.

Question 55

Which one of the following is Section 1231 property?

A)Copyright owned by an author.
B)Accounts receivable.
C)A building used in a trade or business.
D)Inventory.

Question 56

Patty and Rich,married filing jointly,have $385,000 in MAGI and $90,000 of net investment income NII).They will pay a surtax of:

A)$0.
B)$3,420.
C)$5,130.
D)$1,710.

Question 57

Which one of the following is a capital asset?

A)A non-musical copyright created by the taxpayer.
B)Rental property.
C)Business inventory.
D)Household furnishings.

Question 58

Lourdes,a sole proprietor,collected $8,650 on November 21,2016 on some of her outstanding receivables.Her basis in these receivables was $0.What is the gain or loss Lourdes recognizes for 2016?

A)a short-term loss as the FMV is greater than the payments received on the receivables.
B)a short-term gain as the payments are from receivables that are always considered short-term.
C)no gain or loss as the payments are within the normal course of business.
D)an ordinary gain because the receivables had a FMV greater than the basis of the receivables.

Question 59

Caesar,a single taxpayer,has wage income of $75,000.He also has a short-term capital loss of $5,000,a short-term capital gain of $2,000,and a long-term capital gain of $3,000.What is Caesar's AGI for 2016?

A)$75,000.
B)$78,000.
C)$77,000.
D)$72,000.

Question 60

Hiroko,a single taxpayer,has wage income of $80,000.In addition,she has $5,000 in long-term capital losses,$4,000 in long-term capital gains,and $4,000 in short-term capital gains.What is Hiroko's AGI for 2016?

A)$73,000.
B)$88,000.
C)$83,000.
D)$72,000.

Question 61

Dan sold 135 shares assume 100 are long-term)of Elite Mutual Fund on July 26,2016 for $95 per share and received a 1099-B box 3 was not checked for basis)to record the sale of the shares.Dan's investment portfolio includes the following purchases of Elite Mutual Fund: May 20,2013 50 shares at $100 per share
March 29,2014 50 shares at $95 per share
August 21,2015 50 shares at $85 per share
February 22,2016 100 shares at $75 per share
In 2016,Dan will recognize:

A)no short-term gain or loss and a $1,215 long-term gain.
B)$250 long-term loss and $583.45 short-term gain.
C)no long-term gain or loss and a $333.45 short-term gain.
D)$315 short-term gain and a $900 long-term gain.

Question 62

Which of the following statements is incorrect regarding the gain or loss from the sale of property received as a gift?

A)If the FMV is less than the donor's adjusted basis at the time of the gift,the basis for figuring the gain is the donor's basis.
B)If the FMV is less than the donor's adjusted basis at the time of the gift,the basis for figuring the loss is the FMV of the asset.
C)If the FMV is equal to or more than the donor's adjusted basis,the basis for any gain or loss on a sale is the donor's adjusted basis.
D)If the FMV is equal to or more than the donor's adjusted basis,the basis for any gain or loss on a sale is the FMV of the asset.

Question 63

The gain or loss on the sale of property held as an investment is recorded on which one of the following forms or schedules?

A)Form 4797 if the sale was from an asset used for investment purposes by a taxpayer who purchased it with company money as a sole proprietor.
B)Form 4797 regardless if the asset was purchased for investment if the taxpayer is a sole proprietor.
C)Schedule D if the sale was an asset used for investment purposes by a taxpayer.
D)Schedule D if the sale was an asset used in a trade or business by a sole proprietor.

Question 64

Sylvio purchased an apartment building as an investment in January 2010 for $383,500 and sold it for $475,000 in 2016.He reported $68,436 of allowed accumulated straight-line depreciation.If Sylvio is in the highest tax bracket for ordinary income,how much of his gain qualifies for preferential tax treatment?

A)$68,436.
B)$91,500.
C)$159,936.
D)$0.

Question 65

Diane gifted 100 shares of Runners Link common stock with a FMV of $8,000 to her brother,Sean.The stock originally cost Diane $11,000.Sean later sells the stock on the open market for $9,000.Sean recognizes:

A)no gain or loss.
B)a $2,000 loss.
C)a $2,000 gain.
D)a $1,000 gain.

Question 66

Elandra purchased 500 shares in Prompt Messenger Services for $12,000 on November 21,2015.The company went bankrupt on June 12,2016,with no hope of recovery for the shareholders.On what date is the stock deemed to be worthless and what is the nature of the loss?

A)December 31,2016,long-term loss in 2016.
B)December 31,2016,short-term loss in 2016.
C)June 13,2016,short-term loss in 2016.
D)December 31,2015,short-term loss in 2015.

Question 67

A taxpayer purchased land in 2014 for $26,000 and sold it in 2016 for $31,000 cash.The buyer also assumed the remaining mortgage of $13,000.What is the amount recognized on the sale of the land?

A)$8,000 loss.
B)$5,000 gain.
C)$8,000 gain.
D)$18,000 gain.

Question 68

Josephine gave her son,Shane 700 shares of Creative Marketing Inc.,common stock on May 26,2015.Josephine originally paid $9,000 for the stock on April 15,2015.At the date of the gift,the fair market value of the stock was $8,500.If no gift tax is paid and Shane sells the stock for $5,500 on May 26,2016,he will recognize:

A)a short-term capital loss.
B)an ordinary loss.
C)no loss because Josephine already recognized the loss when she gave the stock to Shane.
D)a long-term capital loss.

Question 69

Anike received property as part of an inheritance from her father who passed away on March 10,2016.Her father purchased the property on July 3,2015,for $156,000.Anike sold the property on June 30,2016,for $168,000.At the date of his death the property had a FMV of $154,000.What gain,if any,will Anike pick up on her return for 2016?

A)$3,000 long-term gain.
B)no gain is recognized on the sale of property sold within 1 year of inheritance.
C)$14,000 short-term gain.
D)$14,000 long-term gain.

Question 70

The following is true if land is sold except:

A)The gain on the sale of land used in a business is ordinary income and can appear on a Schedule C if it is owned by a sole proprietor.
B)The gain on the sale of land used in a business is recorded on Schedule D.
C)The gain on the sale of land used in a business is recorded on Form 4797.
D)The gain on the sale of land appears on the Form 1040 under the heading "other income".

Question 71

In 2010,Niveen purchased land for $88,000 for use in her landscape business.She sold it in 2016 for $94,000.If Niveen has no other sales of business or trade property,how will this gain be taxed?

A)$6,000 long-term capital gain.
B)$6,000 short-term capital gain.
C)$6,000 ordinary income.
D)$6,000 Section 1231 gain.

Question 72

Kwon-Lee sold 200 shares held in FNP Mutual Fund in 2016 for $22,500 and received a 1099-B to record the sale of the shares.Kwon-Lee's investment portfolio includes the following purchases of FNP Mutual Fund stock: 2004 100 shares at $100 per share
2008 50 shares at $110 per share
2012 125 shares at $130 per share
2012 75 shares at $125 per share
Assuming Kwon-Lee uses the single category average cost method,he will recognize

A)$3,125 loss.
B)$1,000 loss.
C)$500 gain.
D)no gain or loss.

Question 73

Joe received a parcel of land as a gift from his sister,Lisa,in 2011.At the time of the gift,the land had a FMV of $20,000.Lisa purchased the land in 2007 for $23,000.If Joe sells the land in 2016 for $32,450,he will report a

A)$9,450 ordinary gain.
B)$19,540 capital gain.
C)$12,450 capital gain.
D)$9,450 capital gain.

Question 74

Francisco sells a parcel of land for $100,000 cash and the buyer also assumes Francisco's liability of $10,000.The basis of his land is $70,000.What is the gain or loss realized on the sale?

A)$10,000 gain.
B)$30,000 gain.
C)$20,000 gain.
D)$40,000 gain.

Question 75

On May 1,2015,Kelalani purchased land for $88,000 for use in her business.She sold it on May 1,2016,for $82,000.If there are no other sales of business or trade property,how is this loss treated for tax purposes on Kelalani's return?

A)$6,000 long-term capital loss.
B)$6,000 Section 1231 loss.
C)$6,000 short-term capital loss.
D)$6,000 ordinary loss.

Question 76

Keisha sold 200 shares of Chic-Chic stock in 2016 for $22,500 and received a 1099-B to record the sale of the shares.Keisha's investment portfolio includes the following purchases of Chic-Chic's stock: 2007 100 shares at $100 per share
2008 50 shares at $110 per share
2009 125 shares at $130 per share
2012 75 shares at $125 per share
Assuming Keisha does not identify which shares she sold,she will recognize

A)$3,125 loss.
B)$1,000 loss.
C)$500 gain.
D)no gain or loss.

Question 77

In 2007,Savannah purchased 200 shares of Hi-Style stock as an investment.The stock cost $17,000.In 2016 when the fair market value was $19,000,Savannah gave the stock to her daughter,Daniele.If no gift tax is paid and Daniele sells the stock for $20,000,she will recognize:

A)a $3,000 gain.
B)no gain or loss.
C)a $1,000 gain.
D)a $2,000 gain.

Question 78

Shanstella bought a 4-unit apartment building in July 2007 for $360,000 and sold it for $480,000 in 2016.There was $96,541 of accumulated straight-line depreciation on the apartment building.Assuming that Shanstella is in the 33% tax bracket,how much of her gain is taxed at 25%?

A)$120,000.
B)$216,541.
C)$96,541.
D)$0.

Question 79

Jake purchased a $300,000 earthmover for his business.He sold the earthmover for $245,000 after taking $210,000 of depreciation.What is the nature and amount of the gain or loss on the sale?

A)$55,000 Section 1245 ordinary income and $100,000 Section 1231 gain.
B)$155,000 Section 1231 gain.
C)$90,000 Section 1245 ordinary income and $65,000 Section 1231 gain.
D)$155,000 Section 1245 ordinary income.

Question 80

Which of the following is Section 1231 property?

A)Accounts receivable.
B)A building used in a trade or business.
C)Inventory.
D)Copyright owned by the author.