Test 1
Decker sold equipment for $200,000. The equipment was purchased for $160,000 and had accumulated depreciation of $60,000. What amount is reported as ordinary income under Code Sec. 1245? $0 $ 40,000 $ 60,000 $100,000
$ 60,000 - The gain recognized from the sale is: Amount realized $200,000 Adjusted basis ($160,000 - $60,000) 100,000 Recognized gain $100,000 Personalty is subject to the Section 1245 depreciation recapture rules which indicate that gain will be taxed as ordinary income up to the amount of depreciation claimed on the property. Since there was $60,000 of depreciation on the equipment, $60,000 of the gain is taxed as ordinary income and the remaining $40,000 is taxed as Section 1231 gain.
Hall, a divorced person and custodian of her 12-year-old child, filed her 2019 federal income tax return as head of a household. She submitted the following information to the CPA who prepared her 2019 return: The divorce agreement, executed in 2017, provides for Hall to receive $3,000 per month, of which $600 is designated as child support. After the child reaches 18, the monthly payments are to be reduced to $2,400 and are to be continued until remarriage or death. However, for the year 2019, Hall received a total of only $5,000 from her former husband. Hall paid an attorney $2,000 in 2018 in a suit to collect the alimony owed. In June 2019, Hall's mother gifted her 100 shares of a listed stock. The donor's basis for this stock, which she bought in 1987, was $4,000, and market value on the date of the gift was $3,000. Hall sold this stock in July 2019 for $3,500. The donor paid no gift tax. During 2019, Hall spent a total of $1,000 for state lottery tickets. Her lottery winnings in 2019 totaled $200. Hall earned a salary of $25,000 in 2019. Hall was not covered by any type of retirement plan, but contributed $2,000 to an IRA in 2019. In 2019, Hall sold an antique that she bought in 1997 to display in her home. Hall paid $800 for the antique and sold it for $1,400, using the proceeds to pay a court-ordered judgment. Hall paid the following expenses in 2019 pertaining to the home that she owns: realty taxes, $3,400; mortgage interest, $7,000; casualty insurance, $490; assessment by city for construction of a sewer system, $910; interest of $1,000 on a personal, unsecured bank loan, the proceeds of which were used for home improvements. Hall does not rent out any portion of the home. What was Hall's reportable gain or loss in 2019 on the sale of the 100 shares of stock gifted to her? $0 $500 gain $500 loss $1,000 loss
$0 - A donee basis in property acquired by gift usually equals the donor's basis in the property plus the gift tax paid. However, if the fair market value of the gifted property at the time of the gift is less than the donor's basis in the property, the donee assumes the fair market value of the property at the time of the gift as its basis for computing losses. The donee still uses the donor's basis in the property plus the gift tax paid in computing gains. As with this problem, using the fair market value of the property at the time of the gift as the property's basis in computing losses and the donor's basis in the property plus the gift tax paid in computing gains leads to instances where no gain or loss is recognized. This situation occurs when the donee assumes the fair market value of the property at the time of the gift for losses and sells the property for more than the fair market value assumed as the property's basis for computing losses but less than the donor's basis in the property plus the gift tax paid in computing gains. When Hall received the stock as a gift from her mother, the fair market value of the stock ($3,000) was less than her mother's basis in the property ($4,000). Thus, Hall assumed the stock's fair market value at the time of the gift of $3,000 as her basis in the stock for computing losses and her mother's basis of $4,000 as her basis in the stock for computing gains. Hall sold the stock for $3,500. Using Hall's basis in the stock for computing losses of $3,000 indicates that she realized a gain of $500. However, using Hall's basis in the stock for computing gains of $4,000 indicates that she realized a loss of $500. Therefore, Hall would not recognize any gain or loss from the sale of the gifted stock.
Conner purchases 300 shares of Zinco stock for $30,000 in 2005. On May 23, 2019, Conner sells all the stock to his daughter, Alice, for $20,000, its then fair market value. Conner realizes no other gain or loss during 2019. On July 26, 2019, Alice sells the 300 shares of Zinco for $25,000. What is Alice's recognized gain or loss on her sale? $0 $5,000 long-term gain $5,000 short-term loss $5,000 long-term loss
$0 - A taxpayer acquiring property through purchase or exchange from a person who sustained a loss on the transaction that was disallowed owing to related taxpayer rules realizes a gain on the sale or other disposition of the property only to the extent that the gain exceeds the amount of the disallowed loss. Alice acquired the Zinco stock from her father, who sustained a disallowed loss of $10,000 ($20,000 selling price, less $30,000 purchase price). Hence, Alice would have to realize a gain of more than $10,000 for her to recognize a gain, since she now has a right of offset of $10,000. Alice purchased the stock from her father for $20,000 and sold the stock for $25,000 - realizing a gain of $5,000. Since Alice's realized gain is less than her father's right of offset, Alice does not recognize any gain on the sale of the stock.
Wynn, a single individual age 60, sold Wynn's personal residence for $450,000. Wynn had owned Wynn's residence, which had a basis of $250,000, for six years. Within eight months of the sale, Wynn purchased a new residence for $400,000. What is Wynn's recognized gain from the sale of Wynn's personal residence? $0 $50,000 $75,000 $200,000
$0 - A taxpayer may exclude realized gains up to $250,000 ($500,000 if filing joint) on the sale of a residence if the residence has been owned and used by the taxpayer as a principal residence for at least two of the preceding five years. (Note that for the $500,000 exclusion both spouses must meet the use test, but only one must meet the ownership test). Wynn's realized gain is $200,000 ($450,000 amount realized - $250,000 adjusted basis), so all of this gain can be excluded.
A married couple abandoned their principal residence in May. They had purchased the house five years ago for $350,000. The house had a current fair market value of $300,000. What is the maximum loss, if any, that they are allowed to deduct on the current-year's tax return for the abandoned property? $0 $50,000 $300,000 $350,000
$0 - Losses on the sale or disposition of assets utilized for personal use are not deductible. The realized loss is $350,000 but it is not recognized.
A married couple purchased their principal residence for $300,000. They spent $40,000 on improvements. After living in it for 10 years, the couple sold the home for $650,000 and paid $36,000 in real estate commissions. What gain should the couple recognize on their joint return? $0 $ 60,000 $274,000 $310,000
$0 - The realized gain is computed as follows: Amount Realized: Cash $650,000 Commission ( 36,000) $614,000 Adjusted Basis: Cost $300,000 Improvements 40,000 (340,000) Realized gain $274,000 Since this is a married couple that meets the ownership and use test they can exclude up to $500,000 of gain on the sale of a principal residence. Thus, none of the $274,000 gain is included in income.
Jackson, a single individual, inherits Bean Corp. common stock from his parents. Bean is a qualified small business corporation under Code Section 1244. The stock costs Jackson's parents $20,000 and has a fair market value of $25,000 at the parents' date of death. During the year, Bean declares bankruptcy and Jackson is informed that the stock is worthless. What amount may Jackson deduct as an ordinary loss in the current year? $0 $3,000 $20,000 $25,000
$0 - To qualify for ordinary treatment, 1244 stock must be issued to the taxpayer for money or other property transferred by the taxpayer to the corporation.
Sands purchased 100 shares of Eastern Corp. stock for $18,000 on April 1 of the prior year. On February 1 of the current year, Sands sold 50 shares of Eastern for $7,000. Fifteen days later, Sands purchased 25 shares of Eastern for $3,750. What is the amount of Sands's recognized gain or loss? $0 $500 loss $1,000 loss $2,000 loss
$1,000 loss - Sand's basis per share is $180 ($18,000/100 shares). Sand's realized loss on the 50 shares sold is $2,000 ($7,000 amount realized - $9,000 basis ($180 × 50 shares). This loss is not recognized under the wash sale rule if the same stock is repurchased within 30 days. Since only 25 shares were repurchased during the 30 day period, 50% (25 shares/50 shares) of the loss is not recognized. Therefore, $1,000 of the realized loss is recognized.
On year 1, Janice had the following transactions in Jacky, Inc., common stock: Shares Price Jan. 01—Purchase 500 $25 May 12—Sale 500 $23 May 28—Purchase 250 $22 Oct. 15—Sale 100 $18 What is Janice's deductible capital loss? $400 $700 $1,100 $1,400
$1,100 - May 12 Sale Amount realized (500 × $23) $11,500 Adjusted basis (500 × $25) (12,500) Realized loss $(1,000) Since 250 shares of the Jackey stock was repurchased within 60 days of the sale date (30 days before/30 days after), 50% of the realized loss is not recognized. So the recognized loss is $500. The basis in the 250 shares purchased on May 28 is $6,000 (cost of $5,500 + the deferred loss of $500). The cost per share is $24 ($6,000/250 shares). October 15 Sale Amount realized (100 × $18) $ 1,800 Adjusted basis (100 × $24) (2,400) Realized loss and recognized loss $(600) The total capital loss is $1,100 ($500 + $600).
A married individual invested in Section 1244 small business stock in year 1. In year 7, the individual sold the stock at a loss of $157,000. There were no other stock transactions during year 7. If the taxpayer files a joint return, how much loss can the taxpayer deduct in year 7? $3,000 $53,000 $103,000 $157,000
$103,000 - The $100,000 ordinary loss is deductible and the remaining capital loss is limited to $3,000. A married taxpayer can deduct up to $100,000 of losses for Section 1244 stock. The other $57,000 loss is a long-term capital loss, of which $3,000 of the capital loss is deductible.
Hogan exchanged a business-use machine having an original cost of $100,000 and accumulated depreciation of $30,000 for business-use equipment owned by Baker having a fair market value of $80,000 plus $1,000 cash. Baker assumed a $2,000 outstanding debt on the machine. What taxable gain should Hogan recognize? $0 $13,000 $10,000 $11,000
$13,000 - Beginning in 2018, only real property exchanged for real property qualifies under the like-kind exchange rules. Hogan's transaction is not a like-kind exchange, and his realized gain must be recognized. Amount Realized: Equipment received $80,000 Cash 1,000 Debt relief 2,000 Total $ 83,000 Adjusted Basis: Cost $100,000 Depreciation (30,000) (70,000) Recognized Gain $13,000
Jared purchases an apartment building on January 1, 2007, for $500,000. The building is depreciated using Modified Accelerated Cost-Recovery System (MACRS) straight-line depreciation. The apartment building is sold on December 31, 2019, for $620,000, when its adjusted tax basis is $320,000 (assume that $180,000 of depreciation has been claimed). How much gain from the sale of the building is subject to the 25% rate? $0 $180,000 $300,000 $320,000
$180,000 - Total gain on the sale is $300,000 ($620,000 − $320,000). Gain on the sale of realty is taxed at a 25% rate to the extent of the straight-line depreciation claimed on the asset. (Note that there is no Section 1250 recapture since straight-line depreciation was used for the asset.) The straight-line depreciation was $180,000 so the first $180,000 of gain is taxed at 25%. The remaining gain of $120,000 is taxed as Section 1231 gain.
Upon her grandfather's death, Jordan inherited 10 shares of Universal Corp. stock that had a fair market value of $5,000. Her grandfather acquired the shares in 1996 for $2,500. Four months after her grandfather's death, Jordan sold all her shares of Universal for $7,500. What was Jordan's recognized gain in the year of sale? $2,500 long-term capital gain $2,500 short-term capital gain $5,000 long-term capital gain $5,000 short-term capital gain
$2,500 long-term capital gain - Property bequeathed due to the death of the owner has a fair market value basis to the beneficiary, and a long term holding period. Jordan's gain on the sale of the inherited stock is: Amount Realized $7,500 Adjusted Basis (5,000) Recognized Gain $2,500 Even though Jordan has owned the stock for only four months her holding period is long term since the stock was inherited.
Ryan, age 57, is single with no dependents. In 2019, Ryan's principal residence was sold for the net amount of $400,000 after all selling expenses. Ryan bought the house in 2002 and occupied it until it was sold. On the date of sale, the house had a basis of $180,000. Ryan does not intend to buy another residence. What is the maximum exclusion of gain on sale of the residence that may be claimed on Ryan's 2019 income tax return? $500,000 $220,000 $125,000 $0
$220,000 - The realized gain is $220,000 ($400,000 − $180,000). Taxpayers may exclude up to $250,000 ($500,000 for married filing jointly if both qualify) from the sale of his/her principal residence. To qualify for the exclusion, the taxpayer must own and use the residence as his/her principal residence for two of the 5 years preceding the sale of the residence. Once a taxpayer has made this election, he/she is not eligible to make the election again for two years. The entire $220,000 gain is excluded.
Joe Hall owns a limousine for use in his personal service business of transporting passengers to airports. The limousine's adjusted basis is $40,000. In addition, Hall owns his personal residence and furnishings that together cost him $280,000. Hall's capital assets amount to $320,000 $280,000 $40,000 $0
$280,000 - Capital assets are defined as all those assets held by the taxpayer, except for those listed in Code Section 1221. Those assets listed in Code Section 1221 include inventory, accounts receivable and depreciable property or real estate used in business. Hall's limousine does not qualify as a capital asset, because it is depreciable property used in business. However, Hall's personal residence and furnishings qualify as capital assets, as they are not inventory, accounts receivable and depreciable property or real estate used in business. Therefore, Hall's capital assets amount to $280,000.
Lobster, Inc. incurs the following losses on disposition of business assets during the year: Loss on the abandonment of office equipment $25,000 Loss on the sale of a building (straight-line depreciation taken in prior years of $200,000) 250,000 Loss on the sale of delivery trucks 15,000 What is the amount and character of the losses to be reported on Lobster's tax return? $40,000 Section 1231 loss only $40,000 Section 1231 loss, $50,000 long-term capital loss $40,000 Section 1231 loss, $250,000 long-term capital loss $290,000 Section 1231 loss
$290,000 Section 1231 loss - All of the assets sold are assets that have been used in a business and are therefore Section 1231 losses. Thus, all of the losses are Section 1231 losses and total $290,000.
On August 22, 2019 Martha purchases a computer to use in her childcare business. She sells the computer on December 28, 2019 for $2,000 when the machine has an adjusted tax basis of $1,700. What is the amount and character of the gain on the sale? $300 short-term capital gain $300 long-term capital gain $300 ordinary income $300 Section 1231 gain
$300 ordinary income - Tangible assets that are used in a trade or business and owned for one year or less are ordinary assets. Since the computer was owned for slightly more than four months, the gain is classified as ordinary income.
Bluff purchases equipment for business use for $35,000 and makes $1,000 of improvements to the equipment. After deducting depreciation of $5,000, Bluff gives the equipment to Russett for business use. At the time the gift is made, the equipment has a fair market value of $32,000. Ignoring gift-tax consequences, what is Russett's basis in the equipment? $31,000 $32,000 $35,000 $36,000
$31,000 - Bluff's adjusted basis in the equipment before the gift is $31,000 (cost basis of $35,000 + $1,000 capital improvement - $5,000 cost recovery). When property is gifted, the donee has two bases in the gifted property: the gain basis is the donor's adjusted basis of $31,000 and the loss basis (also $31,000) is the lower of the adjusted basis ($31,000) and fair market value ($32,000). Therefore, Russett's gain and loss bases are both $31,000.
An individual taxpayer reported the following net long-term capital gains and losses: The amount of capital gain that the individual taxpayer should report in Year 3 is Year Gain (loss) 1 ($5,000) 2 1,000 3 4,000 $0 $1,000 $3,000 $4,000
$4,000 - An individual can deduct only $3,000 of net capital losses each year. Excess capital losses are carried over indefinitely. In Year 1, $3,000 of the losses are deducted and the other $2,000 is carried forward. In Year 2, the $2,000 carryforward capital loss offsets the $1,000 capital gain to produce a $1,000 net capital loss. There is no carryforward loss to Year 3 so the entire $4,000 capital gain is recognized.
On January 2, 2015, Bates Corp. purchases and places into service seven-year MACRS tangible property costing $100,000. On December 31, 2019, Bates sells the property for $102,000, after having taken $47,525 in MACRS depreciation deductions. What amount of the gain should Bates recapture as ordinary income? $0 $2,000 $47,525 $49,525
$47,525 - The property sold by Bates Corp. is Section 1245 property and, as such, is subject to 1245 recapture. Section 1245 property includes all depreciable personal property (for example, equipment and machinery). Under Section 1245 recapture, gains are treated as ordinary income to the extent of depreciation or amortization taken on the property. The basis of Bates Corp.'s property at the time of the sale is $52,475 − $100,000 purchase price, less $47,525 in depreciation. Hence, the corporation had a gain of $49,525. However, owing to Section 1245 recapture, the amount of depreciation allowed, $47,525, will be considered ordinary income and only $2,000 will be considered a gain.
An individual with gross income of $78,000 had the following gains and losses from capital transactions during the current year: Loss of $11,000 on the sale of principal residence held for five years Gain of $5,000 from the sale of securities held for four years Loss of $9,000 on the sale of municipal bonds held for seven months Loss of $4,000 on the sale of a painting held for investment for fifteen years What amount of the capital loss should the individual carry forward? $5,000 $8,000 $16,000 $19,000
$5,000 - Losses from the sale of personal use assets are not deductible, so the $11,000 loss is not recognized. The $9,000 loss on the municipal bonds is a short-term capital loss, and the $4,000 loss on the painting is a long-term capital loss. The $5,000 long-term capital gain is reduced to zero by the $4,000 long-term capital loss and $1,000 of the short-term capital loss. Of the remaining $8,000 capital loss, $3,000 is deductible in the current year, and the remaining $5,000 is carried forward.
Carter purchased 100 shares of stock for $50 per share. Ten years later, Carter died on February 1 and bequeathed the 100 shares of stock to a relative, Boone, when the stock had a market price of $100 per share. One year later, on April 1, the stock split 2 for 1. Boone gave 100 shares of the stock to another of Carter's relatives, Dixon, on June 1 that same year, when the market value of the stock was $150 per share. What was Dixon's basis in the 100 shares of stock when acquired on June 1? $5,000 $5,100 $10,000 $15,000
$5,000 - When the shares are bequeathed to Boone, his basis in the shares is the fair market value at the date of death, which is $100 per share. When the stock splits 2 for 1, Boone then owns 200 shares of stock with a basis of $50 each. When the shares are gifted to Dixon, she takes the basis in the stock that Boone had, or $50. Therefore, Boone's total basis is $5,000 (100 shares × $50 per share).
In 2019, Joan Reed exchanges commercial real estate that she owns for other commercial real estate, plus $50,000 cash. The following additional information pertains to this transaction: Property given up by Reed Fair market value $500,000 Adjusted basis $300,000 Property received by Reed Fair market value $450,000 What amount of gain should be recognized in Reed's 2019 income-tax return? $200,000 $100,000 $50,000 $0
$50,000 - When a taxpayer exchanges property for "like-kind" property, no gain or loss is generally recognized. However, if boot is received, gain is recognized to the extent of boot received in the exchange. The exchanges of real estate for "like-kind" real estate qualify for non-recognition under the "like-kind" exchange rules. Reed gave up real estate with an adjusted basis of $300,000. Reed received real estate with a fair market value of $450,000 and $50,000 in cash. Hence, Reed realized a gain of $200,000. However, this gain is only recognized to the extent of the boot that Reed received, $50,000.
Summer, a single individual, had a net operating loss of $20,000 three years ago. A Code Sec. 1244 stock loss made up three-fourths of that loss. Summer had no taxable income from that year until the current year. In the current year, Summer has gross income of $80,000 and sustains another loss of $50,000 on Code Sec. 1244 stock. Assuming that Summer can carry the entire $20,000 net operating loss to the current year, what is the amount and character of the Code Sec. 1244 loss that Summer can deduct for the current year? $35,000 ordinary loss. $35,000 capital loss. $50,000 ordinary loss. $50,000 capital loss.
$50,000 ordinary loss - Even though the NOL includes $15,000 ($20,000 × 3/4) of Section 1244 loss that can be combined with the current Section 1244 loss of $50,000, the maximum deduction for a given tax year is $50,000 for a Section 1244 loss ($100,000 if married filing jointly).
On February 1, year 1, a taxpayer purchased an option to buy 1,000 shares of XYZ Co. for $200 per share. The taxpayer purchased the option for $50,000, which was to remain in effect for six months. The market declined, and the taxpayer let the option lapse on August 1, year 1. The taxpayer would report which of the following as a capital loss on the year 1 income tax return? $50,000 long term. $50,000 short term. $150,000 long term. $200,000 short term.
$50,000 short term - The taxpayer has a loss of $50,000 on the option since it lapsed. The character is capital since the underlying asset, the XYZ stock, is a capital asset. The loss is short term since the option was owned for only six months.
Talbot purchased a laptop for $1,500 and a television for $1,300. The laptop is used solely for business and the television solely for personal entertainment. During the same year, Talbot experienced serious financial difficulty and sold the television for $300 and the laptop for $1,000. What amount, if any, is Talbot entitled to deduct as a loss relating to the sale of the television and laptop? $0 $500 $1,000 $1,500
$500 - Losses from the sale of personal use assets are not deductible so the loss for the television is not deducted. There is a realized loss of $500 ($1,000 amount realized − $1,500 adjusted basis) for the laptop. Since this is a business asset, the $500 loss can be recognized and deducted.
The results of UNA Corporation's first six years of operations are presented below. Year Results of Operations 1 Section 1231 losses of $50,000 2 Section 1231 losses of $30,000 3 Section 1231 gains of $75,000 4 Section 1231 losses of $20,000 5 Section 1231 losses of $30,000 6 Section 1231 gain of $80,000 UNA corporation's year-six Section 1231 gain can best be characterized as $80,000 Section 1231 gain. $50,000 ordinary income; $30,000 Section 1231 gain. $80,000 ordinary income. $55,000 ordinary income; $25,000 Sec. 1231 gain.
$55,000 ordinary income; $25,000 Sec. 1231 gain. - The lookback provision states that the net Section 1231 gains must be offset by net Section 1231 losses from the five preceding tax years that have not previously been recaptured. To the extent of these losses, the net Section 1231 gain is treated as ordinary income. The $75,000 gain in Year 3 was recaptured as ordinary income by $50,000 of the Year 1 loss and $25,000 of the Year 2 loss. Note that $5,000 of the Year 2 loss remains unrecaptured. The $80,000 gain is recaptured as ordinary income to the extent of the $5,000 remaining Year 2 loss, $20,000 Year 4 loss, and $30,000 Year 5 loss for a total of $55,000. The remaining $25,000 gain is treated as a Sec. 1231 gain.
Star, a self-employed individual, purchases a piece of equipment for use in her business. The costs associated with the purchase of the equipment are: Purchase price $55,000 Delivery charges $725 Installation fees $300 Sales tax $3,400 What is the depreciable basis of the equipment? $55,000 $58,400 $59,125 $59,425
$59,425 - The basis includes all of the costs incurred to prepare the asset to be placed in service, which encompasses all of the costs listed in the question.
Dawson Inc.'s warehouse (with an adjusted tax basis of $75,000) was destroyed by fire. The following year, Dawson received insurance proceeds of $195,000 and acquired a new warehouse for $167,000. Dawson elected to recognize the minimum gain possible. What is Dawson's basis in the new warehouse? $47,000 $75,000 $139,000 $167,000
$75,000 - A fire qualifies as an involuntary conversion, and realized gain can be deferred since the old warehouse is replaced with a new warehouse. Amount realized from conversion $195,000 Adjusted basis of old property (75,000) Realized gain $120,000 Amount realized from conversion $195,000 Cost of replacement property (167,000) $ 28,000 The recognized gain is $28,000, the lower of the realized gain or the amount realized that was not reinvested in the new warehouse. The deferred gain is $92,000 ($120,000 - $28,000). The adjusted basis of the new property is its cost reduced by any deferred gain: $167,000 - $92,000 = $75,000.
Smith, an individual calendar-year taxpayer, purchased 100 shares of Core Co. common stock for $15,000 on December 15, 2019, and an additional 100 shares for $13,000 on December 30, 2019. On January 3, 2020, Smith sold the shares purchased on December 15, 2019, for $13,000. What amount of loss from the sale of Core's stock is deductible on Smith's 2019 and 2020 income tax returns? 2019 2020 $0 $0 $0 $2,000 $1,000 $1,000 $2,000 $0
2019 2020 $0 $0 Under wash-sale rules, taxpayers may not recognize losses attributable to the sale of stock or securities if substantially identical stock or securities are purchased 30 days before or after the sale giving rise to the loss. Wash-sale rules do not prevent the recognition of gains from these sales. Smith sold 100 shares of Core Co. common stock on January 3, 2020, for $13,000. As the stock was purchased for $15,000, Smith sustained a loss of $2,000 on the transaction. However, Smith may not recognize this loss because Smith purchased an additional 100 shares for $13,000 on December 30, 2019, which was within 30 days before or after the January 3, 2020, sale. Thus, Smith may not recognize a loss in either 2019 or 2020.
A heavy equipment dealer would like to trade some business assets in a nontaxable exchange. Which of the following exchanges would qualify as nontaxable in 2019? The company jet for a large truck to be used in the corporation Investment securities for antiques to be held as investments A road grader held in inventory for another road grader A corporate office building for a vacant lot
A corporate office building for a vacant lot - An exchange will be non-taxable if it qualifies under the like-kind exchange rules. All realty is considered like-kind property. Since the building and the land are both realty, this qualifies as a non-taxable like-kind exchange. Beginning in 2018, only real property exchanged for real property qualifies under the like-kind exchange rules.
A taxpayer lived in an apartment building and had a two-year lease that began 16 months ago. The taxpayer's landlord wanted to sell the building and offered the taxpayer $10,000 to vacate the apartment immediately. The taxpayer's lease on the apartment was a capital asset but had no tax basis. If the taxpayer accepted the landlord's offer, the gain or loss would be which of the following? An ordinary gain. A short-term capital loss. A long-term capital gain. A short-term capital gain.
A long-term capital gain. - Since the lease is a capital asset the gain is capital in nature. The gain is long-term since the lease is more than one year.
How are a C corporation's net capital losses used? Deducted from the corporation's ordinary income only, to the extent of $3,000. Carried back three years and forward five years. Deductible in full from the corporation's ordinary income. Carried forward 15 years.
Carried back three years and forward five years. - A corporation sustaining a net capital loss shall carry back such net capital loss to each of the three taxable years preceding the loss year and carry over such net capital loss to each of the five taxable years succeeding the loss year.
A C corporation's net capital losses are Carried forward indefinitely until fully utilized. Carried back three years and forward five years. Deductible in full from the corporation's ordinary income. Deductible from the corporation's ordinary income only to the extent of $3,000.
Carried back three years and forward five years. - For corporations, net capital losses can be carried back three years and forward five years and are allowed only to the extent that the carryback does not lead to a net operating loss for the year that it is carried back.
A corporation's capital losses are Deductible only to the extent of the corporation's capital gains. Deductible from the corporation's ordinary income to the extent of $3,000. Carried back two years and forward 20 years. Forfeited if the corporation had no capital gains in the year in which the capital losses were incurred.
Deductible only to the extent of the corporation's capital gains. - Capital gains and losses are required to be classified as short-term (that is, those on assets held for one year or less) and long-term (that is., those on assets held for more than one year). Short-term capital gains are netted against short-term capital losses with the result of a net short-term capital gain or loss. Similarly, long-term capital gains are netted against long-term capital losses to get the net long-term capital gain or loss. The net short-term capital gain or loss and the net long-term capital gain or loss are netted with the resulting capital gain net income, taxable income to the corporation. Capital losses in excess of gains may not be used to reduce the taxable income of the corporation. The unused capital losses may be carried back for three years and carried forward five years. This response states that a corporation's capital losses are deductible only to the extent of the corporation's capital gains.
Which of the following sales should be reported as a capital gain? Sale of equipment Real property subdivided and sold by a dealer Sale of inventory Government bonds sold by an individual investor
Government bonds sold by an individual investor - Government bonds held by an investor is treated as a capital asset.
Among which of the following related parties are losses from sales and exchanges not recognized for tax purposes? Father-in-law and son-in-law Brother-in-law and sister-in-law Grandfather and granddaughter Ancestors, lineal descendants, and all in-laws
Grandfather and granddaughter - Losses from sales and exchanges made by related parties are not recognized for tax purposes. A taxpayer's brothers and sister (whole and half blood), spouse, ancestors and lineal descendants are considered related parties. A taxpayer's in-laws are not considered members of his/her family. This response correctly states that a taxpayer's ancestors and lineal descendants are considered related parties in respect to the taxpayer.
For an individual business owner, which of the following would typically be classified as a capital asset for federal income tax purposes? Accounts receivable Marketable securities Machinery and equipment used in a business Inventory
Marketable securities - Marketable securities are an investment that qualifies as a capital asset.
Simmons gives her child a gift of publicly traded stock with a basis of $40,000 and a fair market value of $30,000. No gift tax is paid. The child subsequently sells the stock for $36,000. What is the child's recognized gain or loss, if any? $4,000 loss No gain or loss $6,000 gain $36,000 gain
No gain or loss - The recipient of a gift has a gain basis and a loss basis in the asset received. The gain basis is the donor's adjusted basis ($40,000) and the loss basis is the lower of the fair market value or the adjusted basis ($30,000). If the asset is later sold for an amount in between the gain and loss basis ($36,000 is in between $40,000 and $30,000), no gain or loss is recognized.
Which of the following items is tangible personal property? Share of stock. Trademark. Promissory note. Oil painting.
Oil painting. - The painting is obviously tangible, and it is the tangible thing ITSELF that has value. A promissory note may be a tangible piece of paper, but it is not the paper itself that has value. Only a right that the paper REPRESENTS has value. The same applies to a share of stock, which is represented by a stock certificate. Obviously, a trademark is an intangible property right.
An individual sold equipment used in a trade or business for $60,000. The equipment was acquired three years ago for $50,000, and $25,000 of allowable depreciation was claimed. How should the sale be reported on the income tax return? Capital gain of $35,000. Ordinary income of $35,000. Section 1231 (Property Used in the Trade or Business and Involuntary Conversions) gain of $35,000. Ordinary income of $25,000 and Section 1231 (Property Used in the Trade or Business and Involuntary Conversions) gain of $10,000.
Ordinary income of $25,000 and Section 1231 (Property Used in the Trade or Business and Involuntary Conversions) gain of $10,000. - Amount Realized $60,000 Adjusted Basis (25,000) ($50,000 cost less $25,000 depreciation) Recognized Gain $35,000 The first $25,000 of gain is recaptured as ordinary income under the Section 1245 recapture rules. The remaining $10,000 gain is a Section 1231 gain since this asset is used in a trade or business.
In a "like-kind" exchange of an investment asset for a similar asset that will also be held as an investment, no taxable gain or loss will be recognized on the transaction if both assets consist of Convertible debentures. Convertible preferred stock. Partnership interests. Rental real estate located in different states.
Rental real estate located in different states. - Exchanges involving property held primarily for sale; stocks, bonds, notes and other securities; partnership interests; certificates trusts or beneficial interest; and evidences of indebtedness are not considered "like-kind" exchanges and, as a result, do not qualify for the non-recognition of gains or losses.
An individual acquired 500 shares of stock on December 20, year 1, for a personal portfolio. On March 15, year 2, the individual executed a short sale of 500 shares of the stock. On December 21, year 2, the individual delivered the 500 shares to cover the short sale. Which of the following statements best characterizes the gain or loss on the short sale? The transaction will be treated as ordinary income because of the March short sale. The transaction will be treated as a long-term capital asset sale. The transaction will be treated as a 40% short-term/60% long-term capital asset sale. The transaction will be treated as a short-term capital asset sale.
The transaction will be treated as a short-term capital asset sale. - A short sale occurs when the taxpayer sells borrowed property and purchases the property later to repay the lender. The holding period is usually determined by how long the property used to close the short sale was held. A short sale against the box occurs when the taxpayer already owns substantially identical securities on the short sale date, as is the case in this problem. In that case, the holding period for the sale begins on December 20, year 1, and ends on March 14, year 2 (the short sale date). Therefore, the holding period is short-term. The stock is an investment, so any gain or loss is capital.
For a cash-basis taxpayer, gain or loss on a year-end sale of listed stock arises on the Trade date. Settlement date. Date of receipt of cash proceeds. Date of delivery of stock certificate.
Trade date - The holding period for stocks and securities acquired by purchase begins on the trade date that the stock or security was acquired and ends on the trade date on which the stock or security was sold or exchanged. Therefore, the gain or loss on a year-end sale of listed stock arises on the trade date.
In 2019, Saints Corporation would like to exchange business use assets with North Stars Corporation. Saints Corporation would like the exchange to qualify as a tax-free like-kind exchange. Which of the following exchanges would qualify for tax deferred treatment? Large machinery for small machinery Inventory for business use equipment Undeveloped investment land for a rental apartment building Disney stock for IBM stock
Undeveloped investment land for a rental apartment building - Beginning in 2018, only realty for realty qualify as a like-kind exchange and receive tax free treatment. Exchanges of personalty, partnership interests, inventory, and equity or creditor interests do not qualify. Land and buildings qualify as realty, so this is a qualified like-kind exchange.
