CH.31 Income Tax Issues

Stan sold his investment property for $97000 and had $8000 in closing costs. The property had a beginning basis of $77000, improvements of $4000 and depreciation of $15000. What was stan's capital gain? a. $97000 b. $31000 c. ($7000) d. $23000

$23000 97000-8000 = 89000 77000+4000-15000=66000 89000-66000=23000

Robert has three investment properties. They had the incomes of 35000,50000 and 15000 last year. they had the expenses of 25000,73000 and 35000 last year. what is the net income for the three properties? a. 101,500 b. 100000 c. (1500) d. 1500

(1500)

How long must an assert be held if the profit on its sale is a long-term capital gain? a. 6 months b. 1 year c. 2 years d. 5 years

1 year not D: long-term capital gains are profits on capital assets held for longer than a year

Lori purchased a home for 250000 with an additional 5000 in related purchase costs and then added a garage at a cost of 25000. she sold the home 10 years later for 575000 and paid 35000 in selling costs. she will pay capital gains tax on how much? a. 10000 b. 260000 c. 575000 d. zero

10000

sam purchased an apartment building in april of 2007. his initial basis on the building is 395250 what is his monthly depreciation allowance?

1197.73

carol sold her investment property for 450000 and had 21000 in closing costs. The property had a beginning basis of 312000, capital improvements of 34000 and depreciation of 80000. what was carols capital gain? a. 163000 b. 3000 c. 184000 d. 129000

163000 the amount realized is 429000(450000-21000). the adjusted basis is the initial cost of the property plus why capital improvements minus the depreciation = in this case 266000(112000+80000. The capital gain for this property is 163000 (429000 - 266000)

when was the taxpayer relief act signed into law a. 1983 b. 1988 c. 1992 d. 1997

1997

what is the class life for residential structures? a. 15 y b. 25 y c. 27.5 y d. 39 y

27.5 years

Derek bought his home for 250000. he made 25000 of improvements. Derek sold the home for 895000 and paid 90000 selling expenses, including the brokers commission. on what amount will Derek pay capital gains tax? a. 530000 b. 280000 c. 30000 d. 895000

280000

if rob and Lori purchased a home for 250000 with an additional 4000 in related purchase costs and then added a swimming pool at a cost of 30000 and new AC system at a cost of 5000 what would their adjusted basis be when they sell the home? a. 289000 b. 285000 c. 280000 d. 219000

289000

what is the max net capital loss that can be deducted annually? a. 3000 b. 5000 c. 7500 d. 10,000

3000

John and Sheryl bought their home for $354000. They made $129000 of improvements. They sold the home for $1,085,000 and paid $56000 in selling expenses, including the broker's commission. On what amount will they pay capital gains tax? a. $175000 b. $1,085,000 c. $546,000 d. $46000

46000 not c: the gain on the sale is the amount realized minus the adjusted basis. the amount realized is the sale price minus the costs of the sale - in this case $1029000(1085000-56000). The adjusted basis is the initial cost of the property plus any capital improvements - in this case $483000(354000+129000). The capital gain for this property is 546000(1029000-483000). However, john and sheryl are eligible for the 500,000 exclusion so they will pay capital gains on 46000(546000-5000000)

how much does the Taxpayer Relief Act exempt from the sale of a primary residence for married taxpayers who are filing jointly? a. 50000 b. 250000 c. 500000 d.none

500000

Rob and Lori purchased a home for 250000 with an additional 4000 in related purchase costs and then added a swimming pool at a cost of 30000 and a new AC system at cost of 5000. Five years later, they sold the home for 375000 and paid 23000 in selling costs. how much was their gain on the sale of the home? a. 86000 b. 125000 c. 121000 d. 63000

63000

which of the following is NOT a current tax bracket? a. 7% b. 10% c. 28% d. 33%

7%

basis is decreased by.. a. transfer taxes b. capital improvements c. assessments d. easements

Easements not b: basis is increased by such expenditures as transfer taxes, capital improvements, and assessments but is decreased by such things as easements

the taxpayer relief act _______ the alternate minimum tax on small businesses. a. reduced b. increased c. did not address d. eliminated

Eliminated

what income taxes do residents of NYC have to pay? a. only federal income taxes b. only federal and state income taxes c. federal, state, and city income taxes d. no income taxes

Federal, state, and city income taxes

the low-income housing credit program provides _________ in federal income tax liability for project owners who develop rental housing that serves low income households with incomes up to 60% of area median income a. a larger standard deduction b. a $1000 tax credit c. a dollar-for-dollar tax deduction d. a dollar-for dollar tax credit

a dollar-for-dollar tax credit

the party who receives boot in a tax-free exchange has a. a net gain and must pay taxes on the difference b. a net loss and receives the difference as a tax credit c. a net gain and does not have to pay taxes on the differences d. a net loss and receives the difference as a tax deduction

a net gain and must pay taxes on the difference cash or other property added to an exchange to make the value of the traded goods equal.

which of the following is not an example of a like-kind exchange? a. a principal residence for a motel b. vacant lot for a store c. rental condo for a gas station d. BnB inn for two small farms

a principal residence for a motel

what is the formula for determining the gain on the sale of a home? a. adjusted basis - sale price = gain on sale b. amount realized - adjusted basis = gain on sale c. net sales proceeds + capital improvements = gain on sale d. amount realized + capital improvements - adjusted basis = gain on sale

amount realized - adjusted basis = gain on sale Amount realized is the amount received from the sale of an asset adjusted basis is your cost in acquiring your home plus the cost of any capital improvements you made, less casualty loss amounts and other decreases.

Which of the following would prevent the homeowner from deducting home mortgage interest? a. the homeowner itemizes deductions on schedule A of Form 1040 b. the homeowner is not legally liable for the loan c. the homeowner has a true debtor-creditor relationship with the lender d. the mortgage is a secured debt on a qualified home

b. the homeowner is not legally liable for the loan

what type of exchange occurs when there is a time gap between the transfer of the relinquished property and the acquisition of the replacement property? a. delayed exchange b. reverse exchange c. simultaneous exchange d. built-to-suit exchange

delayed exchange

Homeowners can deduct all but which of the following from their income taxes? a. mortgage interest b. depreciation c. prepayment penalties d. property taxes

depreciation

home equity debt is any mortgage taken out after 10/13/1987 that... a. does qualify as either home acquisitioned debt or grandfathered debt and is secured by the homeowner's qualified home. b. does qualify as either home acquisitioned debt or grandfathered debt and is secured by the homeowner's qualified home c. does not qualify as either home acquisitioned debt or grandfathered debt and is not secured by the homeowner's qualified home d. does not qualify as either home acquisitioned debt or grandfathered debt and is secured by the homeowner's qualified home.

does not qualify as either home acquisitioned debt or grandfathered debt and is secured by the homeowner's qualified home. not A: home equity debt is any mortgage tanken out after 10/13/1987 that does not qualify as either home acquisitioned debt or grandfathered debt and is secured by the homeowner's qualified home.

the taxpayer relief act allows penalty-free IRA withdrawals for... a. first time home buyers b. moving expenses c. medical expenses d. military personnel

first time home buyers

what do we call debt on mortgages taken out prior to 10/13/1987 a. home equity debt b. line-of-credit debt c. home acquisition debt d. grandfathered debt

grandfathered debt

NY non-residents must pay income tax for ______ income earned in NYC a. employment b. social security c. royalty d. investment

investment not a: in NYC, in addition to state income tax, there is a city income tax for residents of the city and for non-residents who earn income from NY investments

A/n ____________ is the financial result of an investment that has been sold at a profit a. unrealized capital loss b. unrealized capital gain c. realized capital loss d. realized capital gain

realized capital gain not A: a realized capital gain is an investment that has been sold at a profit

the process wherein the depreciation portion of the gain is taxed as capital gain is called a. taxed depreciation b. full gain tax c. recaptured depreciation d. adjusted gain tax

recaptured depreciation not a: when the sale price is more than the allowed depreciation amount, the difference is either ordinary income or capital gain, with the depreciation portion of the gain being taxed as capital gain in a process called recaptured depreciation

in what type of exchange is the replacement property acquired prior to transferring the relinquished property? a. delayed exchange b. build-to-suit exchange c. reverse exchange d. simultaneous exchange

reverse exchange

in a 1031 exchange, what is the period within which a person who has sold the relinquished property must receive the replacement property? a. the exchange period b. the identification period c. the initiation period d. the qualification period

the exchange period

Rob and Lori purchased a home for 350000 with an additional 5000 in related purchase costs and then added a garage at a cost of 25000. they sold the home for 450000 and paid 28000 in selling costs. they will pay capital gains tax on how much? a. 42000 b. 70000 c. 1000000 d. zero

zero Not A: 350000+5000=355000 beginning basis + 25000 captial improvements = 380000 adjusted basis; 450000 selling price - 28000 selling costs = 422,000 amount realized - 380000 adjusted basis = 42000 gain on sale. The capital gains tax exclusion for a married couple filing jointly is 500000, so R and L will pay no capital gains tax on this sale because their gain than the exclusion