Deck 7: Property Dispositions

Question 1

In what order are capital gains subject to the 15%, 25%, and 28% capital gains included in taxable income in the determination of the tax liability?

Answer 1

Taxpayers' capital gains that are subject to different rates must be included in the following order in taxable income: 25% asset capital gains are included first, 28% asset capital gains are included second, and 15% asset capital gains are included last.

Question 2

Determine the amount of the capital gain or loss in each of the following transactions and state whether the gain or loss is long-term or short-term.
a. 100 shares of Bilco stock bought for $8,000 on January 22 of year 3 and sold for $10,000 on January 22 of year 4.
b. 20 acres of investment land bought for $8,000 on January 31 of year 3 and sold for $7,000 on February 2 of year 4.
c. 150 shares of Data stock bought for $15,000 on April 1 of year 2 and sold for $17,000 on May 28 of year 4.
-Refer to the information in problem 1.
a. If the taxpayer is a corporation with taxable income of $100,000 before the three property transactions detailed in that information, what is the corporation's total taxable income?
b. If the taxpayer is an individual in the 35 percent tax bracket before the three property transactions, what tax rate(s) will apply to the sale of gain assets?

Answer 2

a. $2,000 LTCG - $1,000 LTCL = $1,000 LTCG; $100,000 + $1,000 LTCG + $2,000 STCG = $103,000 total taxable income
b. $1,000 LTCG taxed at 15%; $2,000 STCG taxed at 35%

Question 3

Bill is in the 35 percent tax bracket in 2011 During the year, he sold some stock held for 11 months at a $500 gain, gold coins held for two years at a $1,900 loss, antique toys held three years at a $2,200 gain, bonds held for two years for $400 gain, and some investment land held six months at a $300 loss. Determine Bill's net capital gain or loss and detail how it will be treated for tax purposes.

Answer 3

$2,200 LTCG + $400 LTCG - $1,900 LTCL = $700 LTCG; $500 STCG - $300 STCL = $200 STCG; $700 LTCG: $300 taxed at 28%; $400 taxed at 15%; $200 STCG taxed at 35%.

Question 4

Determine the amount and type of capital loss deduction and carryover to the next year in each case below for Gina, a single taxpayer.

Question 5

Carlos provides you with the following information for years 1 and 2, exclusive of capital loss carryovers:

Determine the amount and type of capital loss deduction each year, if any, and the carryover to the following year.

Question 6

A taxpayer has the following gains and losses from property transactions completed in 2011. What is the effect on the taxpayer's taxable income and income tax if the taxpayer is (a) an individual or (b) a corporation?

Question 7

Taxpayer B has the following gains and losses from property transactions. What is the effect on the taxpayer's taxable income if Taxpayer B is (a) a corporation; (b) an individual?

Question 8

Craig and Sally, a married couple in the 35 percent tax bracket who file joint returns, purchased a home on December 1, 2009 for $600,000. They made $100,000 of improvements during the time they owned the home. They sold the home on May 31, 2011 after Craig accepted a job in another state netting $1,250,000 after expenses on the sale. What are the tax consequences of this sale?

Question 9

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250.

-Gain on the sale of stock by an individual.

A)capital
B)Section 1231
C)ordinary
D)Section 1245
E)Section 1250

Question 10

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250.

-Gain on the sale of a building used for 15 years by a corporation.

A)capital
B)Section 1232
C)ordinary
D)Section 1246
E)Section 1251

Question 11

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250.

-Gain on the sale of a machine used by a business for four years sold at a price less than its original cost.

A)capital
B)Section 1233
C)ordinary
D)Section 1247
E)Section 1252

Question 12

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250.

-Gain on the sale of a personal residence.

A)capital
B)Section 1234
C)ordinary
D)Section 1248
E)Section 1253

Question 13

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250.

-Gain on the sale of inventory.

A)capital
B)Section 1235
C)ordinary
D)Section 1249
E)Section 1254

Question 14

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250.

-Loss on the sale of equipment used in a business for three years.

A)capital
B)Section 1236
C)ordinary
D)Section 1250
E)Section 1255

Question 15

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250.

-Loss on the sale of municipal bonds by a corporation.

A)capital
B)Section 1237
C)ordinary
D)Section 1251
E)Section 1256

Question 16

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250.

-Gain on the sale of a machine used by a business for 11 months.

A)capital
B)Section 1238
C)ordinary
D)Section 1252
E)Section 1257

Question 17

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250.

-Loss on the factoring of receivables.

A)capital
B)Section 1239
C)ordinary
D)Section 1253
E)Section 1258

Question 18

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250.

-Gain on sale of a building used by a partnership for eight years in excess of its original cost.

A)capital
B)Section 1240
C)ordinary
D)Section 1254
E)Section 1259

Question 19

Wesley sold a piece of property for $30,000 cash paying a $3,000 sales commission. The buyer assumed Wesley's $13,000 mortgage on the property. Wesley had purchased the property for $15,000 and had invested an additional $6,000 in it. What is Wesley's realized gain on the sale?

A) $6,000
B) $9,000
C) $19,000
D) $22,000

Question 20

During the current year, Mrs. Mayhew receives a typewriter as a gift from her son. The typewriter has a current fair market value of $150 and cost her son $450. He took $250 of depreciation deductions while it was used in his business. Mrs. Mayhew uses the typewriter for several years and then sells it for $125. What is the amount and type of gain or loss that Mrs. Mayhew recognizes on the sale?

A) $25 personal loss
B) $75 personal loss
C) $25 Section 1231 loss
D) $50 of Section 1231 gain
E) None of the above

Question 21

Edna had $20,000 of ordinary income. In addition, she had a $1,500 short-term capital gain on one stock and a $4,900 long-term capital loss on another. What is her net income before any deductions?

A) $21,500
B) $17,000
C) $16,600
D) $15,100

Question 22

An individual taxpayer has the following property transactions during the current year:
$$\begin{array} { l l } \text { Personal automobile owned 3 years } & \$ 4,000 \text { loss on sale } \\\text { Business equipment owned 3 years } & \$ 5,600 \text { gain on sale } \\\text { Factoring of receivables } & \$ 6,200 \text { loss } \\\text { Common stock owned 7 months } & \$ 3,500 \text { gain on sale }\end{array}$$
How do these transactions affect the individual's AGI?

A) AGI is increased by $2,900
B) AGI is decreased by $1,100
C) AGI is increased by $9,100
D) AGI is decreased by $2,900
E) None of the above

Question 23

Martone Corporation sells two machines and a warehouse it has been using for storage in the current tax year. Each of the machines cost $25,000 and has an adjusted basis of $11,000 when each was sold for $14,000. The warehouse cost $105,000, has an adjusted basis of $60,000 and is sold for $95,000. All assets were depreciated using MACRS depreciation. What is the amount and type of gain recognized by Martone on the sale of these assets?

A) $6,000 Section 1245 gain; $35,000 Section 1231 gain
B) $6,000 Section 1245 gain; $7,000 Section 1250 gain; $28,000 Section 1231 gain
C) $6,000 section 1245 gain; $35,000 Section 1250 gain
D) $41,000 capital gain
E) None of the above

Question 24

Margo purchased 2,000 share of qualifying Section 1202 stock six years ago for $200,000. In the current year, she sold the stock for $2,000,000. How much gain can she exclude from her income?

A) $2,000,000
B) $1,800,000
C) $900,000
D) $200,000
E) None of the above