Gains and Losses
You received an acre of land as a gift. At the time of the gift, the land had an FMV of $8,000. The donor's adjusted basis was $10,000. After you received the land, no events occurred to increase or decrease your basis. You sell the land for $9,000. What is the amount of gain or loss you must report? - $1,000 gain - $1,000 loss - $2,000 gain - $0
$0
Carol provides services in 2011 to Bragg Corporation. Her service contract with Bragg Corporation listed her fee at $50,000 receivable in cash and/or stock. At the time her fee was due Bragg Corporation stock was trading for $1,000 per share. Carol elected to receive $30,000 in cash and 20 shares of Bragg Corporation stock. In 2015, the Bragg Corporation stock split increasing the number of Carol's shares to 40. In the current year Carol sells 20 shares of her Bragg Corporation stock for $1,500 per share. What is Carol's basis in the Bragg Corporation shares she still owns? - $10,000 - $20,000 - $30,000 - $40,000
$10,000
On January 1, 20X1, Bob paid $11,000 for a bond including a premium of $1,000 when he purchased the $10,000 bond. Bob elected to amortize the bond premium. The amortization is $300 a year, Bob sold the bond on January 2, 20X2. What basis does Bob have in the bond on January 2, 20X2? - $11,000 - $10,000 - $10,700 - $9,700
$10,700
Ed purchased a house on an acre of land from Ruth on June 30. Prior to the purchase, Ed had been renting the house from Ruth for $500 per month. Ed paid the following amounts: $100,000 in loan proceeds to Ruth $2,000 in points to the bank $1,000 in real estate taxes Ruth owed to the town $1,000 in past due rent to Ruth $1,000 in closing costs to the bank for legal, recording, title insurance and survey fees $1,000 in escrowed real estate taxes to the bank What is Ed's basis in the house and land purchased from Ruth? - $100,000 - $102,000 - $104,000 - $106,000
$102,000
A taxpayer purchased a rental property for $100,000. The taxpayer gave $25,000 as a cash down payment and financed $75,000. Closing costs were $4,000 and points were $4,000. What is his basis in the property? - $34,000 - $109,000 - $104,000 - $100,000
$104,000
Wilson bought three acres of land for a total price of $140,000. Several years later, the land was sold to Ammerson for $200,000. Ammerson paid $40,000 in that year and then an additional $80,000 payment each year until the debt was paid off. Wilson qualified to use the installment sales method on this sale for income tax purposes. Interest is calculated separately. In the year of the sale, what profit will Wilson recognize in computing taxable income? - Zero - $12,000 - $24,000 - $40,000
$12,000
Beth and Donnie purchased a house to use as rental property. They paid the following amounts: $100,000 cash, assumption of an existing $25,000 mortgage, title search $500, recording fees of $100, points for a new loan totaling $1,000, and the seller's part of the property taxes of $1500. The seller did not reimburse them for the property taxes. What is their cost basis in the house? - $100,000 - $125,000 - $127,100 - $128,100
$127,100
Horace Turner owned a building with an income tax basis of $400,000 but with an estimated fair value of $510,000. The property was condemned by the local government so that the property could be used for a landfill. To avoid litigation, the government paid him $530,000. He used $360,000 of this money to buy property that qualified as replacement property. What gain, if any, should he recognize on this condemnation of this building? - Zero - $20,000 - $130,000 - $170,000
$130,000
You had an adjusted basis of $15,000 in real estate you held for investment. You exchange it for other real estate to be held for investment with a fair market value of $12,500, a truck with a fair market value of $3,000 and $1,000 cash. What is the total basis of the real estate and the truck? - $15,500 - $14,000 - $15,000 - $16,500
$15,500
A taxpayer purchases rental property for $160,000. She uses $25,000 cash and obtains a mortgage for $135,000. She pays closing costs of $10,000, which includes $5,000 in points on the mortgage and $5,000 for legal fees and title costs. Her initial basis in the property is: - $35,000 - $170,000 - $165,000 - $160,000
$165,000
Horace Fife is a 20 percent partner of a local convenience store although he does not actively participate in its operations. This year he was allocated a loss from this business of $24,000. He also owns shares of several publicly held companies and received dividends this year of $17,000. Fife owns two rental houses. During the year, their revenues totaled to $40,000 and operating expenses were $30,000. Finally, Fife held a share of a limited partnership and reported income this year of $4,000 as a result of that ownership. What is the increase in Fife's adjusted gross income as a result of all these investments? - $7,000 - $14,000 - $17,000 - $31,000
$17,000
Estelle Adams bought some securities on January 6, Year One for $140,000. Unfortunately, she then died on October 19, Year One when these investments were worth $175,000. Her final will left these securities to her nephew John. The securities were valued at $158,000 on April 19, Year Two but had risen to a value of $164,000 on May 23, Year Two when physically conveyed to him. The executor of Estelle Adams's estate opted to use the alternative valuation date. John held these securities until December of Year Two and sold them for $160,000. What is his tax effect for that year? - $20,000 gain - $2,000 gain - $4,000 loss - $15,000 loss
$2,000 gain
Billy Luker made several stock sales during 20X2. Determine the net capital gain or loss for the following transactions: PurchasedCostDate SoldSales Price1-1-20X2$4,0006-2-20X2$6,0007-6-20X1$10,0007-7-20X2$14,0007-6-20X1$20,0007-6-20X2$17,0004-3-20X1$5,0006-2-20X2$4,000 - $2,000 net short-term capital gain - $3,000 net long-term capital gain and $2,000 net short-term capital gain - $2,000 net long-term capital gain - $4,000 net long-term capital gain and $2,000 net short-term capital loss
$2,000 net long-term capital gain
Candy Valentine owns securities with a tax basis of $5,000. She gives them to Bill Wallace when they are worth $6,100. He holds them but they begin to fall in value. He finally sells them for $5,200. What is the impact on taxable income that he must report on this sale? - Zero - $900 loss - $200 gain - $1,100 gain
$200 gain
Mr. Rabbitt purchased a home for $200,000. He incurred the following additional expenses:$200 fire insurance premiums$500 mortgage insurance premiums$400 recording fees$250 owner's title insurance.Compute his basis in the property. - $201,350 - $200,000 - $200,650 - $201,150
$200,650
Ramona gave Abigail three acres of land which she had purchased eight years ago for $23,000. The fair value of the land on the date of the gift was $42,000. Shortly thereafter, Abigail sells the land for $39,000. What is the tax basis of the land to determine the gain or loss on this sale? - $23,000 - $39,000 - $42,000 - $16,000
$23,000
In 20X1, Stevie sold land near his home in Oklahoma with a basis of $50,000 for $100,000. He received a $50,000 down payment and the buyer's note for $50,000. In 20X2, he is scheduled to receive the first of five annual payments of $10,000 each, plus 12% interest. What is the gain to be reported in 20X1? - None - $25,000 - $50,000 - $10,000
$25,000
Vito acquired an acre of land as a gift. At the time of the gift, the acre had a fair market value (FMV) of $45,000. Tom Hagen, who gave Vito the acre, had an adjusted basis in the land of $35,000. No gift tax was paid on the land. No events occurred to increase or decrease his basis in the property. Vito later sold the acre for $10,000 to Barzini. What is Vito's gain or loss on the sale? - $35,000 loss - $25,000 loss - $0 gain or loss - $10,000 gain
$25,000 loss
This year for his birthday, Michael's father, Kirk, gifted him a rare painting of a duck holding a shotgun. This gift of property has a fair market value (FMV) of $60,000. Kirk's adjusted basis was $20,000. The gift tax paid was $10,000. What is Michael's basis in the property? - $20,000 - $28,889 - $30,000 - $60,000
$28,889
Maggie Miranda had the following transactions during 20X1: $36,000short-term capital loss$15,000long-term capital loss$25,000short-term capital gain$22,000long-term capital gain What is the impact on taxable income for 20X1? - $7,000 taxed as a long-term capital gain - $3,000 short-term capital loss carried forward to future years - $7,000 long-term capital gain taxed at capital gain rates and $3,000 short-term capital loss which is deductible against ordinary income - $3,000 short-term capital loss deductible against ordinary income
$3,000 short-term capital loss deductible against ordinary income
Jerry received seven acres of land valued at $30,000 as a gift from Dean. Dean's adjusted basis was $32,000. Jerry subsequently sold the land for $20,000, which didn't make Dean happy. For purposes of reporting the transaction, what is Jerry's basis in the land? - $30,000 - $32,000 - $8,000 - $ 2,000
$30,000
Several years ago, Francis paid $220,000 to build his home on a lot that cost him $50,000. Before converting the property to rental use last year, he paid $80,000 for permanent improvements to the house. He received a $5,000 easement payment from the State of Ohio for use of the land for a sidewalk. The county indicates the FMV of the house is $350,000 and the land is $75,000. What is Francis' basis for depreciation? - $300,000 - $220,000 - $270,000 - $350,000
$300,000
Mr. McFly had an adjusted basis of $30,000 in Lyon Estates, real estate he held for investment. He exchanged it for other real estate in Hilldale to be held for investment with a fair market value of $25,000, a truck with a fair market value of $6,000 and $2,000 cash. What is the total basis of the real estate and the truck? - $28,000 - $31,000 - $30,000 - $33,000
$31,000
In 20X1, Ralph received 10 shares of White Corporation stock as a gift from his father. Ralph's father had originally paid $10 per share for this stock. The stock was trading for $20 per share at the time of the gift. In 20X4, Ralph purchased an additional 20 shares of White Corporation stock for a price of $30 per share. Ralph was charged a $20 transaction fee on this purchase. In October of 20X5, Ralph sold 20 shares of his White Corporation stock. Ralph cannot adequately identify the shares he disposed of. What is Ralph's basis in the White Corporation shares he still owns? - $100 - $200 - $310 - $360
$310
Herb files single and had the following capital gains and losses in 20X2: $500 loss on the sale of stock he purchased on January 14, 20X2 and sold on August 10, 20X2 $5,000 loss on the sale of stock purchased October 1, 20X1 and sold November 1, 20X2 $1,000 gain on the sale of a vacant lot held for 5 years How should Herb's capital gains and losses be initially reported on Schedule D? - $4,500 long-term loss - $4,000 long-term loss and $500 short-term loss - $4,500 long-term loss and $500 short-term loss - $5,500 long-term loss and $1,000 short-term gain
$4,000 long-term loss and $500 short-term loss
Larry sold stock with a cost basis of $10,500 to his son for $8,500. Larry cannot deduct the $2,000 loss. His son sold the same stock to an unrelated party for $15,000, realizing a gain. What is his son's reportable gain? - $6,500 - $4,500 - $2,000 - No gain
$4,500
In the year 20X1, Captain Carl received 100 shares of Bland Corporation stock as a gift from his neighbor's barber. Captain Carl's neighbor's barber had originally paid $1 per share for this stock. The stock was trading for $5 per share at the time of the gift to Captain Carl. In 20X2, Captain Carl purchased an additional 200 shares of Bland Corporation stock at $30 per share. Captain Carl was charged a $100 fee for that purchase. In March of 20X4, Captain Carl sold 150 shares of his Bland Corporation stock. Captain Carl cannot adequately identify the shares he disposed of. What is the Captain's basis in the Bland Corporation shares he still owns? - $1,625 - $4,575 - $1,600 - $4,500
$4,575
Billy's father deeded him 400 acres of land. The fair market value (FMV) on the date of the transfer was $350,000. His father had paid $40,000 for the land. No gift tax was paid on the transfer. When Billy's father died six months later, the fair market value of the land was $400,000. What is Billy's basis in the 400 acres? - $400,000 - $350,000 - $40,000 - $260,000
$40,000
Alison Long owns securities with a tax basis of $3,000. She gives them to Ned Simmons when they are worth only $2,100. Simmons held these securities until they were worth $3,400 and sold them. What amount of gain does he have to report on this sale? - Zero - $400 - $900 - $1,300
$400
Thelma works for Louise and received land as payment for her services on Louise's 1965 Cadillac Sedan. Louise's basis in the land was $3,000 and the land had a FMV of $5,000. Thelma's basis in the land is: - $0 - $2,000 - $3,000 - $5,000
$5,000
The owner of unimproved land with a basis of $40,000 sold the property for $100,000. The seller accepted a note for the entire $100,000 sales price. In a later year, when the buyer still owed $10,000, the note was sold for $9,000 cash. How should the disposition of the note be reported on the seller's tax return? - $5,000 capital gain - $5,000 ordinary income - $2,000 capital gain - $1,000 capital loss
$5,000 capital gain
Patti inherited 100 shares of Superbubble Inc stock when her mother died on August 8, 20X1; the fair market value of the stock was $10 per share. Her mother paid $290 per share when she purchased the stock ten years prior. If Patti sells all 100 shares for $60 per share on July 3, 20X4, how should she report the sale on her return for 20X4? - $23,000 short-term capital loss - $5,000 short-term capital gain - $23,000 long-term capital loss - $5,000 long-term capital gain
$5,000 long-term capital gain
Jane acquired an acre of land as a gift. At the time of the gift, the acre had a fair market value (FMV) of $20,000. The donor's adjusted basis in the land was $15,000. No gift tax was paid on the gift. No events occurred to increase or decrease her basis in the property. Jane later sold the acre for $10,000. What is Jane's gain or loss on the sale? - $ 5,000 loss - $10,000 loss - $0 gain or loss - $10,000 gain
$5,000 loss
Richard Milhaus owns securities with a tax basis of $7,000. He gives them to Shania Mitchell when they are worth $6,700. She holds them but they continue to fall in value and are finally sold for $6,200. What is the impact on taxable income that she must report on this sale? - Zero - $300 loss - $500 loss - $800 loss
$500 loss
Herman gave Gomez a creepy, old rental house. Both of their families were creepy and liked it. Herman had purchased the property in 1995 for $60,000 and has taken $8,000 in depreciation. Herman's adjusted basis was $52,000. The fair market value of the rental house on the day of transfer from Herman to Gomez was $135,000. If Gomez sells the house at a gain, his basis in the property will be: - $52,000 - $60,000 - $127,000 - $135,000
$52,000
In 2021, your father gave you a gift of property with a fair market value (FMV) of $75,000. His adjusted basis was $50,000. The gift tax paid was $10,000. What is your basis in the property? - $60,000 - $75,000 - $50,000 - $54,167
$54,167
Sue gave Jennifer a rental house in 2021. Sue had purchased the property in 2006 for $60,000 and has taken $17,000 in depreciation. Just before the transfer she also paid $5,000 for a room addition. Gift tax of $18,200 was paid. The fair market value of the rental house on the day of transfer was $90,000. Jennifer's basis in the property will be: - $90,000 - $66,200 - $58,192 - $48,000
$58,192
Skiba is a lawyer who does work for one of her clients in Year One. The invoice price for the work done was $2,000 but she agreed to accept shares of another company as payment in full. These shares had cost the client $600 when bought two years earlier as an investment but were worth $1,900 at the time of conveyance. In Year Two, Skiba sells the shares for $2,500 in cash. What gain does Skiba have for income tax purposes at the time of sale? - Zero - $500 - $600 - $2,500
$600
Tom gave Fred a rental house. Tom had purchased the property in 2000 for $80,000 and has taken $9,000 in depreciation. Tom's adjusted basis was $71,000. The fair market value of the rental house on the day of transfer was $90,000. If Fred sells the house at a gain, his basis in the property will be: - $90,000 - $80,000 - $71,000 - $81,000
$71,000
You sold a residential lot two years ago and reported the $20,000 capital gain on the installment method. In the third year of payments the buyer defaulted and you had to repossess the lot. In the first year you reported a gain of $5,000 ($10,000 × 50%) and $3,000 ($6,000 × 50%) in the second year. No payments were received in the third year and you spent $2,500 in legal fees to repossess the property. What is the taxable gain you must report on the repossession? - $-0- - $9,500 - $8,000 - $4,000
$8,000
Jane Rembrandt is an accountant. She accepted shares of a client's common stock in lieu of payment for services that she had rendered to the company. The stock had a fair value of $8,000. The value of services was $9,000. After receipt, the stock appreciated and Jane sold the stock for $8,600. All of these transactions occurred in the same year. What is the type and amount of income reported by Jane? - $9,000 of ordinary income - $9,000 of ordinary income and $400 of capital loss - $9,000 of ordinary income and $600 of capital gain - $8,000 of ordinary income and $600 of capital gain
$8,000 of ordinary income and $600 of capital gain
Thomas Hightower owns securities with a tax basis of $6,000. He gives them to Selma Alexander when they are worth $6,400. She holds them but they begin to fall in value and are finally sold for $5,200. What is the impact on taxable income that she must report on this sale? - Zero - $400 gain - $800 loss - $1,200 loss
$800 loss
How should an individual report the following transactions on a return? Total short-term capital losses $6,000 Total short-term capital gains $15,000 Total long-term capital losses $10,000 Total long-term capital gains $10,000 - $0 net capital gain - $6,000 net capital gain - $9,000 net capital gain - $21,000 net capital gain
$9,000 net capital gain
The Path Act of 2015 permanently extends the percentage exclusion for qualified small business stock sold by an individual to: - 50% of eligible gain - 60% of eligible gain - 75% of eligible gain - 100% of eligible gain
100% of eligible gain
Jeremy owns a duplex. He lives in one half and rents out the other half at fair rental value. He wants to take depreciation on the building, the appliances, and major remodeling in the bathroom on the rental side. What depreciation may be taken? - 27.5 year MACRS on both sides of the duplex, 7 year MACRS on the appliances and remodeling. - 27.5 year MACRS on the rental side, 0 on the personal side, and 7 year MACRS on the appliances and remodeling. - 27.5 year MACRS on both sides of the duplex, 5 year MACRS on the appliances and remodeling. - 27.5 year MACRS on the rental and remodeling, 5 year MACRS on the appliances, and no depreciation on the personal side.
27.5 year MACRS on the rental and remodeling, 5 year MACRS on the appliances, and no depreciation on the personal side.
All of the following are long-term capital gain rates, EXCEPT: - 0% - 15% - 35% - 28%
35%
In 20X1 you bought 100 shares of XYZ stock for $1,000 or $10 a share. In 20X2 you bought 100 shares of XYZ stock for $1,600 or $16 a share. In 20X3 XYZ declared a 2-for-1 stock split. Which of the following is correct? - You now have 200 shares with a basis of $5 per share. - You now have 200 shares with a basis of $8 per share. - You now have 400 shares with a basis of $6.50 per share. - A & B above.
A & B above.
Three years ago, Abbey Hoffman loaned $19,000 to her brother-in-law Tom Osborne. Tom signed a note for that amount and promised to make monthly payments including interest at a 6 percent annual rate. Tom never paid any of this money and Abbey has recognized no revenue from this loan. During the current year, Tom admitted to Abbey that he is never going to repay her. What is the tax effect for Abbey? - Abbey can write off the principal of the loan and all the lost interest income in the year she learns that they will not be repaid - Abbey must file an amended return to claim the loss on the principal of the loan in the year it was originally made. - Abbey can write off the principal of the loan in the year she determines it to be totally worthless. - Abbey must obtain a court judgment in her favor before she can deduct the principal of the loan as a capital loss.
Abbey can write off the principal of the loan in the year she determines it to be totally worthless.
Wilson owns stock in two companies. Each investment cost $10,000. Both investments drop in value to $9,000. At that point, he gives one investment to Adam and the other investment to Sara. Adam's investment goes up in value to $10,400 and he sells it. Sara's investment goes down in value to $8,500 and she sells it. What are the tax effects created by these sales? - Adam has a $400 taxable gain and Sara has a $1,500 taxable loss - Adam has a $1,400 taxable gain and Sara has a $500 taxable loss. - Adam has a $400 taxable gain and Sara has a $500 taxable loss. - Adam has a $1,400 taxable gain and Sara has a $1,500 taxable loss.
Adam has a $400 taxable gain and Sara has a $500 taxable loss.
Jay Conover incurred a non-business bad debt of $9,700 in the current tax year. The loan had been outstanding for 13 months but was now viewed as completely worthless. Which of the following statements are true in connection with the individual's income tax return? - All $9,700 is a short-term capital loss. - All $9,700 is a long-term capital loss. - It is a short-term capital loss of $3,000 and a long-term capital loss of the remaining $6,700. - It is a long term capital loss of $3,000 and a short term capital loss of $6,700.
All $9,700 is a short-term capital loss.
The amount realized from a sale or trade of property is: - All items received for the property including money, fair market value of any property or services and debt or other liabilities assumed by buyer - The adjusted basis of the property at the time of sale - The amount of income or loss reported in taxable income for the tax year - Fair market value minus sale price (positive number is gain realized, negative number is loss realized)
All items received for the property including money, fair market value of any property or services and debt or other liabilities assumed by buyer
Connor purchased Flora stock in 20X1 and sold it in 20X9. In 20X9, he also sold a copy machine that he had been using in his business since 20X1. On December 15, 20X9, he inherited 35 shares of Fauna Laboratories stock. What is the holding period for these properties? - All short-term - Flora stock long-term, copy machine and Fauna stock short-term - Flora and Fauna stock long-term, copy machine short-term - All long-term
All long term
The cost basis of real property includes: - Fees paid to the settlement attorney - Recording fees and transfer taxes - Real estate taxes paid to the seller without reimbursement - All of the above
All of the above
Your basis in property you inherit from a decedent is generally one of the following: - The FMV of the property at the date of the individual's death. - The FMV on the alternate valuation date, if the personal representative for the estate chooses to use alternate valuation. - The decedent's adjusted basis in land to the extent of the value that is excluded from the decedent's taxable estate as a qualified conservation easement. - All of the above.
All of the above
If an involuntary conversion occurs when your property is destroyed, stolen, condemned, or disposed of under the threat of condemnation and you receive other property or money in payment, such as insurance or a condemnation award, which of the following statements is correct? - Gain or loss from an involuntary conversion of your property is usually recognized for tax purposes unless the property is your main home. - You may not have to report a gain on an involuntary conversion if you receive property that is similar or related in service or use to the converted property. - If you receive money or property that is not similar or related in service or use to the involuntarily converted property and you buy qualifying replacement property within a certain period of time, you can choose to postpone reporting the gain. - All of the above are true.
All of the above are true.
Walker Ambrose owns three acres of land in Tennessee with a cost of $70,000 and a fair value of $110,000. The state of Tennessee condemns the land and takes ownership so that a road can be built through the property. The state pays Ambrose $114,000 for the land it took. Ambrose takes this money and buys similar land four miles away for $111,000. What is the tax effect of these events? - No taxable gain or loss. - Ambrose has a taxable gain of $44,000. - Ambrose has a taxable gain of $3,000. - Ambrose has a taxable gain of $4,000.
Ambrose has a taxable gain of $3,000.
An increase in basis of property can be due to items properly added to a capital account. These items include all of the following, EXCEPT: - Adding a bathroom - Building a fence - Paving the driveway - Amounts received for granting an easement
Amounts received for granting an easement
A taxpayer made several sales this year and is trying to determine whether any of this property qualifies as a capital asset. Which of the following statements is false? - Any property used in a trade is viewed as a capital asset. - Any investment property is viewed as a capital asset. - Any property held for personal use is viewed as a capital asset. - Any property used in a business is not viewed as a capital asset.
Any property used in a trade is viewed as a capital asset.
Which of the following is NOT real property? Undeveloped land Buildings Appliances Fixtures
Appliances
If capital losses are more than capital gains, a taxpayer may claim a capital loss deduction. Which of the following is true of capital losses and carryovers? - A capital loss can be deducted, but only in the year it occurs - Capital losses can be deducted, up to certain limits, and any additional loss would be carried over and deducted on future years, up to certain limits - Capital losses can be deducted in the year they occur and one previous year return may be amended to take the additional loss up to certain limits - Capital losses are listed on Schedule C
Capital losses can be deducted, up to certain limits, and any additional loss would be carried over and deducted on future years, up to certain limits
A capital loss of $10,000 is carried from Joey's 20X1 return to 20X2. Joey died on June 30, 20X2. Before his death, Joey had the following capital transactions: bought REY stock for $1,000 on 1-9-20X2 and sold for $800 on 2-10-20X2; invested $4,000 in a limited partnership 3-30-20X2 but changed his mind and sold his interest for $3,900 on 5-30-20X2. When Joey's brother files a 20X2 final return for Joey, how much capital loss can be deducted and how should any remainder be treated? - Deduct $10,300 on Joey's final return - Deduct $3,000 on Joey's final return and the remainder is lost (never deductible) - Deduct $3,000 on Joey's final return and carry the remainder to his estate income tax return - Deduct $1,500 on Joey's final return and remainder is lost (never deductible)
Deduct $3,000 on Joey's final return and the remainder is lost (never deductible)
Which of the following will decrease the basis of property? - Capital losses. - Capital improvements. - Depreciation. - Legal fees.
Depreciation
The basis in property inherited from a decedent may be determined as follows: - The decedent's basis plus any inheritance tax paid on the increased value. - The fair market value at the date of death. - The fair market value at an alternate valuation date. - Either the fair market value of the property on the date of death or an alternate valuation date, if elected.
Either the fair market value of the property on the date of death or an alternate valuation date, if elected.
Tom Metty sold property to his son in a transaction that was viewed as a related party transactions for income tax purposes. Which of the following is true regarding related party transactions? - Gains from related party transactions are taxed, but losses are not deductible. - Related party transactions are suspended until there is a final transaction with an outside party. - Gains and losses are not recorded on transactions between related parties. - Related party transactions only apply to corporate ownership of other corporations.
Gains from related party transactions are taxed, but losses are not deductible.
Mr. Jones had a net short-term capital gain in Year One of $18,000. By coincidence, Ms. Smith had a net long-term capital gain of $18,000 in that same year. Without consideration for these capital gains, both taxpayers had taxable income amounts of $100,000. They are both single taxpayers. Which of the following statements is true? - In connection with the capital gains, the two taxpayers will pay the same amounts. - In connection with the capital gains, Mr. Jones will pay more taxes than Ms. Smith. - In connection with the capital gains, Ms. Smith will pay more taxes than Mr. Jones. - From the information provided, it is impossible to tell which party will pay the most income taxes.
In connection with the capital gains, Mr. Jones will pay more taxes than Ms. Smith.
Which of the following is NOT a capital asset? - Inventory - Household furnishings - Gems and jewelry - Stocks and bonds
Inventory
On January 1, John Jacob sold shares of Ford Motor Company to his daughter Emily. The original cost had been $11,000 to Jacob but the sale was for $7,000, the market value of those shares on that date. Emily held the shares until September 1 when she started college and sold them to an outside party for $8,300 to help pay for tuition. What does each party report on their separate federal income tax returns? - John reports no loss and Emily reports a loss of $2,700 - John reports a loss of $4,000 and Emily reports a gain of $1,300 - John reports no loss and Emily reports no gain - John reports no loss and Emily reports a gain of $1,300
John reports no loss and Emily reports no gain
On April 6, Sue Thorn bought a house to use as residential rental property. She made several repairs and had it ready for rent on July 1. At that time, she began to advertise it for rent in the local newspaper. A tenant rented the house on August 1. When does depreciation begin? - April 6 - April 1 - July 1 - August 1
July 1
The rule for involuntary conversions does not apply to _________? - Theft of personal property - Like-kind exchanges - Insurance awards - Threat of condemnation
Like-kind exchanges
The cost basis of property includes all of the following, EXCEPT: - The cost of the property - Loan origination fees - Legal and accounting fees - Sales tax
Loan origination fees
A gain on inherited property is generally classified as: - Short-term gain - Long-term gain - Depends on how long the decedent held the property prior to death - Ordinary income
Long-term gain
Julia sold her stock in ABC Company to her sister Hannah for $30,000. Julia's tax basis in this investment was $33,000. Sixteen months later, Hannah sold the stock to an unrelated third party for $32,000 in cash. What is the income tax effect of Hannah's sale? - Neither a gain nor a loss - Gain of $2,000 - Gain of $1,000 - Loss of $1,000
Neither a gain nor a loss
Silas Wykowski receives 20 shares of stock from a friend as a gift. These shares had originally cost the friend $400 but were only worth $300 when the conveyance to Silas was made. The stock was held for some time and then sold for $280. What is the income tax effect recognized by Silas Wykowski? - $300 gain at the time of gift and a $20 loss when sold. - No gain or loss at the time of gift and a $120 loss when sold. - No gain or loss at the time of gift and a $20 loss when sold. - $400 gain at the time of gift and a $120 loss when sold.
No gain or loss at the time of gift and a $20 loss when sold.
In Year One, James Hayes owned a valuable pocket watch. It had a tax basis of $12,000 but a fair value of $23,000. The pocket watch was stolen and never recovered. The insurance company settled his claim with the payment of $20,000. He immediately took this money and another $1,000 of his own money and bought a replacement pocket watch for $21,000. In Year Two, he sold this second pocket watch for $24,000 in cash. What is the impact of these transactions from an income tax perspective? - No gain or loss in Year One but an $11,000 taxable gain in Year Two - A $3,000 taxable loss in Year One but a $14,000 taxable gain in Year Two - An $8,000 taxable gain in Year One and another $3,000 taxable gain in Year Two - No gain or loss in Year One but a $3,000 taxable gain in Year Two
No gain or loss in Year One but an $11,000 taxable gain in Year Two
If ABC Corporation bought and took delivery of a set of office furniture for the CEO's office on December 31, 20X1, and the CEO took it with him as part of his severance package when he left the company on December 31, 20X2, ABC's holding period is? - Not more than one year - Less than one year - More than one year - More than one year only if ABC is an accrual basis taxpayer
Not more than one year
Patsy loaned money to Scarlett in 20X1. Scarlett signed a loan agreement and made the agreed-upon monthly payments until May 20X3 when she stopped making payments. Patsy called Scarlett and wrote her a letter requesting payment but received no response. Then in November 20X3, Patsy read in the newspaper that Scarlett had filed bankruptcy with no assets. Patsy can take a deduction for a bad debt: - Only on her timely filed 20X3 return. - By amending her 20X3 return within three years. - By amending her 20X1 return. - On her timely filed 20X3 return or by amending her 20X3 return within seven years.
On her timely filed 20X3 return or by amending her 20X3 return within seven years.
When does the holding period for a purchased asset end? - On the day before the asset is sold. - On the day the asset is sold. - On the first day after the day the asset is sold. - On the first business day after the asset was sold.
On the day the asset is sold.
When does the holding period for a purchased asset begin? - On the day before the asset was acquired - On the day the asset was acquired - On the first day after the asset was acquired - On the first business day after the asset was acquired
On the first day after the asset was acquired
Which of the following statements is true as it pertains to non-business bad debt? - The bad debt is deductible if at least 50% of the original debt is considered worthless - A loan in excess of $3,000 to a 16 year old from her parents qualifies because it is over the $2,500 threshold - Qualifying debt is classified as short term capital loss - The taxpayer must wait until the year the loan is due to claim it as bad debt
Qualifying debt is classified as short term capital loss
If a business asset is sold but the seller agrees to finance the sale over five years, the seller must? - Record any depreciation recapture income in the year of sale - Recognize any gain in the year of sale as a capital gain - Must report any loss as an installment sale on Form 6252 - Calculate the gross profit percentage by dividing the contract price by the gross profit from the sale
Record any depreciation recapture income in the year of sale
The rules for like-kind exchanges could apply to exchanges of _________? - A family car used for personal purposes. - Inventories held for sale to others. - Rental houses. - Partnership interests.
Rental Houses
Joe had a taxable gain on the sale of his main home, which could not be excluded on his tax return. He had no business use of the home. Which schedule does he need to submit to report the gain? - Schedule C - Schedule A - Schedule D - Schedule SE
Schedule D
The amount realized from the sale or exchange of property is generally the selling price minus _________? - Improvements - Depreciation - Construction costs - Selling expenses
Selling expenses
Martha Moyes is married, but has separated from her husband. She will appropriately file her income tax return as married, filing separately. She had the following stock transactions: capital gain on sale of stock (short-term) of $23,050 and capital loss on sale of stock (long-term) of $ 27,500. What is the treatment of capital gains on her tax return? - She can deduct the net $4,450 capital loss against her ordinary income. - She can deduct $3,000 of the capital loss this year against her ordinary income. - She can deduct $1,500 of the loss this year against her ordinary income. - She can deduct the capital loss only to the extent of the capital gain. The remainder will be carried forward and can be deducted against capital gains that occur in the future.
She can deduct $1,500 of the loss this year against her ordinary income.
Carmen DiAnno is filing her income tax return for Year One. She has a number of revenue sources and wants to determine their impact on the amount of tax she will have to pay. Which of the following income items is taxed at the ordinary income tax rate? - Interest is received from bonds issued by the City of Atlanta, Georgia. - Qualified dividends are received from a large computer software company based in California. - She has a long-term capital gain of $11,000 and a short-term capital loss of $10,000. - She has a short-term capital gain of $7,000 and a long-term capital loss of $3,000.
She has a short-term capital gain of $7,000 and a long-term capital loss of $3,000.
A taxpayer has both short-term capital loss and nontaxable distribution from an investment. Which of the following statements is incorrect? - The basis of the investment is reduced by the non-taxable distribution. - Non-taxable distribution is a return of capital invested. - Short-term capital loss reduces the basis of the investment. - Short-term capital losses have no effect on basis.
Short-term capital loss reduces the basis of the investment.
When a taxpayer inherits a capital asset from a decedent, the taxpayer's basis is generally the fair market value of the asset on the date of death (or an alternate valuation date). When the FMV of the asset is greater than the decedent's basis, this is called a _________________? - Carryover basis - Transferred basis - Substituted basis - Step-up basis
Step-up Basis
Charlie owns a factory that specializes in making candy. Charlie just received a gift of rental property from his uncle. Which of the following is the depreciable basis in the rental property that is placed in service after Charlie received it as a gift, if the donor's basis was less than the fair market value of the property? - The fair market value on the date of the gift plus or minus any required adjustments to basis. - The fair market value of the property on the date you converted it to rental property. - The donor's basis of the property plus or minus any required adjustments to basis. - All of the above.
The donor's basis of the property plus or minus any required adjustments to basis.
Which of the following is the depreciable basis in rental property that is placed in service after receiving it as a gift, if the donor's basis was more than the fair market value of the property? - The fair market value on the date of the gift, plus or minus any required adjustments to basis. - The fair market value of the property on the date you converted it to rental property. - The donor's basis of the property plus or minus any required adjustments to basis. - All of the above.
The donor's basis of the property plus or minus any required adjustments to basis.
Emma's brother purchased 100 shares of Clockwork, Inc. stock for $10 per share on December 30, 20X1. Emma inherited the shares of Clockwork stock from her brother on September 15, 20X2, when it had a fair market value of $15 per share. On December 20, 20X2, she sold the stock for $20 per share. What is the amount and character of her gain? - The gain of $1,000 is short-term capital gain. - The gain of $1,000 is long-term capital gain. - The gain of $500 is long-term capital gain. - The gain of $500 is short-term capital gain.
The gain of $500 is long-term capital gain.
The related persons rule regarding asset sales applies to transactions between _________? - In-laws - A two percent partner and the partnership - The grantor and a fiduciary of a trust - A minority shareholder and a corporation
The grantor and a fiduciary of a trust
Which of the following statements is true with respect to capital assets for individual taxpayers? - Gains and losses for both investment and personal property are reported on Schedule D of the Form 1040. - The taxpayer must report gains and losses on investment property, but only reports gains on personal property. - Losses on personal property are deductible only to the extent of gains on personal property - Losses on investment property are deductible only to the extent of gains on investment property
The taxpayer must report gains and losses on investment property, but only reports gains on personal property.
Simon Garfinkel is a single taxpayer who incurred a $19,000 short-term capital loss during the most recent tax year. In addition, he had a $2,000 long-term capital gain. What is the impact on his taxable income for this year? - No impact - There is a $1,500 reduction in taxable income. - There is a $3,000 reduction in taxable income. - There is a $17,000 reduction in taxable income.
There is a $3,000 reduction in taxable income.
Bob Gibson purchased 2,000 shares of IBC Corporation three years ago for $32 per share. These shares are currently selling at $11 per share on the stock market. Bob sells all of his stock on February 1 and then repurchases the same number of shares on February 22 for $11.50. What is the amount of gain/loss to be reported on Bob's tax return for this year? - There is no gain or loss reported on the sale of these securities. - Wash sale rules require the loss to be reported but it is offset by the difference in the selling and repurchase prices. - The loss of $.50 per share will be reported in the current year. - The loss equal to $32 minus $11 per share will be reported as a long-term capital loss
There is no gain or loss reported on the sale of these securities.
Mr. and Mrs. Archibald Taylor are filing their income tax return for the current year. They have short-term capital losses of $10,000 and long-term capital losses of $20,000. Which of the following is correct? - They can deduct $3,000 of the short-term losses this year and carry all of the remaining losses forward indefinitely. - They can deduct nothing this year but can carry all of the losses back for three years and then forward for up to seven years. - They can deduct $3,000 of the long-term losses this year and carry all of the remaining losses forward for up to 20 years. - The losses are combined and $3,000 can be deducted this year with the remaining $17,000 carried over for up to seven years.
They can deduct $3,000 of the short-term losses this year and carry all of the remaining losses forward indefinitely.
Qualified small business stock, for purposes of applying rollover and exclusion rules, is stock that meets all the following tests EXCEPT: - Stock in a C corporation. - Originally issued after August 10, 1993. - Acquired by original issue in exchange for money or other property or as pay for services. - Total gross assets of $100,000,000 or less at all times after August 10, 1993 and before it issued the stock.
Total gross assets of $100,000,000 or less at all times after August 10, 1993 and before it issued the stock.
Juan purchased two shares of common stock in 20X1 in a company that markets biotech products. Juan paid $90 for one share and paid $110 for the next share. Later that year, the company declared a 2 for 1 common stock split. Juan's new basis in the stock shares is: - Average of the 4 shares at $50 a share - Two shares at $90 a share and two shares at $110 a share - Four shares at $200 a share - Two shares at $45 a share and two shares at $55 a share
Two shares at $45 a share and two shares at $55 a share
Ben is a limited partner in three different partnerships. Two of the partnerships lost money in this tax year and one was profitable: Partnership A: loss of $2,000 Partnership B: profit of $3,300 Partnership C: loss of $4,100 Ben has no other passive income during the tax year. What amount can Ben deduct as a loss on his individual income tax return in the current year? - Zero - $3,000 - $2,800 - $6,100
Zero
Billy Bob Lowdermilk owns securities with a tax basis of $8,000. He gives them to Jamie Orwell when they are worth $7,100. She holds them and they begin to climb slowly in value. She eventually sells them for $7,800. What is the impact on taxable income that she must report on this sale? - Zero - $700 gain - $200 loss - $900 loss
Zero
Susan McKenzie inherited 500 shares of a stock with a market value of $40 per share from her aunt. The aunt's tax basis in the stock was $22 per share. What amount of income should McKenzie report on her tax return as a result of this conveyance? - $20,000 - $11,000 - $9,000 - Zero
Zero
