Margaret bought a small residential rental building in 1999 for $150,000. In 2014, she sold it for $400,000. She had taken $55,000 of straight-line depreciation. Margaret is in the 35 percent bracket for ordinary taxable income. How is her gain on this sa
c. Residential rental property does not come under the Section 1245 recapture rules. Instead, the entire gain in the sale of such a property is treated as long-term capital gain but with a special rate of 25 percent applied to the depreciation taken over
Mel sells land which had been used in his business for $300,000. The land has an adjusted basis of $150,000. The buyer gives Mel a note for $150,000 and cash of $150,000. Mel receives no payment on the note during the year of sale. What does Mel report as
b. The gain on the sale is $150,000 (selling price of $300,000 less adjusted basis of $150,000). The contract price is $300,000, so the ratio to be applied to cash and note principal collected is gain/contract price = $150,000/$300,000 = 50 percent. The a
Curt sells raw land to Brad for $300,000. Curt has held the land since 2000 and it has a basis of $200,000. In 2014, Curt receives $50,000 and a note for $250,000. Brad agrees to pay the note every April 15 for 10 years at $25,000 principal plus 10 percen
c. The 2015 payment is $25,000 principal and $25,000 interest according to their agreement. Curt must report the $25,000 interest income on Schedule B. Curt's long-term gain is calculated under the installment sale rules. The total gain is $100,000 and th
Paul, a single taxpayer, buys a house in San Diego for $300,000 in 1996. He lives in it continuously until he moves to San Francisco on July 1, 2011. Because of the depressed housing market, he is unable to sell his San Diego house until July 1, 2014 when
b. Paul qualifies for the $250,000 gain exclusion. The sale date is July 1, 2014, the 5 preceding years would go back to June 30, 2009, and Paul used the house as his personal residence until July 1, 2011 which would be 2 of the 5 preceding years. His net
Ramon's property lies in the path of a planned highway by-pass around a town. In order to complete the highway, the town condemns Ramon's property and purchases it for $200,000. Ramon's property had an adjusted basis of $50,000. Ramon moves to the other s
d. Ramon's realized gain is $200,000 - $50,000 = $150,000
Ramon's recognized gain is $200,000 - $100,000 = $100,000
The new basis is $100,000 - $50,000 = $50,000.
For the year 2014, Janice had W-2 income of $35,000. She also had the following capital transactions: long-term gain $7,000; short-term gain $3,000; long-term loss $2,000; and short-term loss $4,000. On April 15, 2015 she deposited $5,500 into a tradition
c. $35,000 + ($7,000 - $2,000)[long-term]+ ($3,000 - $4,000)[short-term] - $5,500[IRA deduction] = $33,500
Which of the following would result in a long-term gain or loss?
a. None of these choices would be long-term gain or loss.
b. Stock purchased on June 30, 2013 and sold on June 30, 2014
c. Stock purchased on October 20, 2013 and sold on February 26, 2014
d
d. Stock purchased on the last day of the month must be held until the first day of the 13th month following the purchase in order to be long-term.
Mike inherited a stock portfolio from his grandfather. His grandfather had purchased the stock many years ago for $35,000. At the date of his grandfather's death, the portfolio was valued at $200,000. Mike was afraid the value of the stock would decline,
c. The basis of inherited property is generally the fair market value at the date of death. An immediate sale usually results in no gain or loss unless selling expenses are incurred. The holding period of inherited property is long-term even for an immedi
Larry and Ruth bought a rental property 5 years ago for $200,000 plus settlement expenses of $1,500. They made no improvements and took depreciation deductions of $20,000. In 2014, they sold it for $150,000 cash and the buyer assumed their $150,000 mortga
d. The original basis is $200,000 + $1,500 = $201,500. Their adjusted basis is $201,500 - $20,000 = $181,500. The selling price is the cash received $150,000 + the mortgage assumed $150,000 = $300,000. The amount realized is $300,000 - $24,000 = $276,000.
Maureen is running short of cash. Because of this, she sells her childhood stamp collection to a collector for $20,000. She had invested $10,000 in purchasing the collectible stamps. Assuming Maureen is in the 25 percent bracket for ordinary income, what
a. The $10,000 gain on "collectibles" is taxed at 25 percent since Maureen is in the 25 percent tax bracket. Collectibles gain is capped at 28 percent for those in the 28 percent or higher tax brackets.
In 2014, Jack and Jill have a long-term gain of $40,000 on stock they bought several years ago. They have no other capital gains or losses for the year. Their taxable income before the capital gain is $73,800, making their total taxable income for the yea
c. $10,163 + (15% x $40,000) = $16,163. Jack and Jill's ordinary tax rate is in the 25 percent bracket so they must pay 15 percent on their capital gains.
Eric buys land as an investment for $250,000 on June 30, 2014. He subsequently decides he doesn't like the neighborhood and sells the land for $225,000 on October 25, 2014. What is the nature of Eric's gain or loss?
a. Short-term loss.
b. Long-term gain.
a. Eric holds the land as an investment but does not hold it for longer than 1 year. Therefore, the loss ($225,000 - $250,000 = $25,000 loss) is a short-term capital loss.
Steve sold a machine that was used in his business for $65,000. He had purchased it 4 years ago for $50,000 and had taken depreciation deductions of $20,000. How does Steve report this transaction in his tax return for the current year?
a. None of these c
b. The machine has an adjusted basis of $50,000 - $20,000 = $30,000. The gain is $65,000 - $30,000 = $35,000. The depreciation is $20,000 which is taken first as Section 1245 recapture and treated as ordinary income. The remaining gain $35,000 - $20,000 =
Randy has a manufacturing business. During the year, he sold four pieces of machinery, all of which he had owned for more than 1 year. The sales resulted in the following: a $3,000 gain; a $6,000 loss; a $1,000 loss and a $10,000 gain. Assuming there is n
a. All Section 1231 gains and losses are first netted against each other. If the result is a net gain it is treated a long-term capital gain. $3,000 + $10,000 - $6,000 - $1,000 = $6,000 gain.
Which of the following is not a Section 1231 asset?
a. Bluegrass Farms race horses.
b. A duplex rental.
c. Machinery used in a factory.
d. Accounts receivable of a wholesale business.
e. An apartment building.
d. All assets listed above are Section 1231 assets as long as they have been held for more than 1 year, except for the accounts receivable. Accounts receivable, inventory, copyrights, etc. receive different tax treatment.
Sam Colt experienced a small explosion in his gun factory. Two of his best machines were destroyed in the resultant fire. The first machine had an adjusted basis of $5,000 after depreciation of $6,000, and a fair market value of $3,000 just before the exp
d. First the gain or loss is determined. The first transaction resulted in a $2,000 loss ($5,000 adjusted basis less $3,000 insurance reimbursement). The second transaction resulted in a $1,000 gain ($8,000 insurance reimbursement less $7,000 adjusted bas
During 2014, Jeremy exchanges a machine used in his business for a similar machine in a like-kind exchange. Jeremy's machine had an adjusted basis of $8,000 and he received a machine worth $12,000 and $2,000 cash. What are Jeremy's realized gain, recogniz
e. Realized gain equals amount received less adjusted basis. ($12,000 + $2,000 - $8,000 = $6,000).
Recognized gain is the lesser of gain realized $6,000 or boot received $2,000.
Basis of new machine equals basis of old machine less boot received plus gain
Isabel is a successful artist. Which of the following is not a capital asset to Isabel?
a. Her inventory of her own original art held for sale.
b. Her collection of other artists' works.
c. Her 1956 Corvette.
d. All of these choices are capital assets to
a. Inventory is not a capital asset.
Larry experienced two losses during the year. First his house was burglarized and his 6-month-old $6,000 television was stolen. He received reimbursement of $4,000. Then his car was damaged by a hit-and-run driver. Larry had owned the car for a long time
c. Each loss is first reduced by the $100 floor. The casualty losses and gains are then netted. If the result is a net loss, the loss is subject to the 10 percent of AGI limitation and is an itemized deduction. If the net result is a gain, the casualty lo
Barbara has ordinary income of $30,000. In addition she has a short-term capital loss of $2,000 and a long-term capital loss of $5,000. What may Barbara claim currently, and what is the amount and nature of her carry-forward?
a. Barbara claims a $3,000 cu
b. When a taxpayer has both short-term and long-term losses, the short-term losses are used for the current deduction first, and then the long-term losses, up to a total of $3,000. Unused losses retain their nature as short-term or long-term when carried
In January 2014, the Blue Bunny Ice Cream Company exchanged a refrigerated delivery truck, which cost $54,000 and had accumulated depreciation of $18,000, for a new refrigerated truck worth $65,000. In connection with the exchange, the company paid $35,00
e. The tax basis of the new truck is equal to the adjusted basis of the old truck plus cash paid. $54,000 - $18,000 + $35,000 = $71,000.
John is a dentist with a successful private practice. Which of the following is a capital asset to John?
a. His accounts receivable.
b. His office building.
c. All of these choices are capital assets to John.
d. None of these choices are capital assets to
e. Only the stock is a capital asset to John. The real and personal property used in a trade or business are excluded, as are accounts receivable.
John and Mary move from New York to San Diego. They use their $500,000 exclusion when they sell the New York house and they buy a new house in San Diego for $400,000. One year later John is transferred by his company to a position in Denver. They sell the
a. They have a realized gain on the sale of the San Diego house of $50,000 ($450,000 - $400,000). However, because their move was employment related and unexpected they are allowed to use the ratio of the $500,000 exclusion which corresponds to the time t
Steve has a manufacturing business. In 2014, his storage building is completely destroyed by fire. It had an adjusted basis of $75,000. He received $300,000 from the insurance company and elected to replace the building under the involuntary conversion pr
b. The basis of the new building is the cost of the building less the deferred gain. Steve's realized gain is $300,000 - $75,000 = $225,000. Since 100 percent of the proceeds were reinvested in the new building, all of the realized gain is deferred. The b
Bennett purchased a tract of land for $20,000 in 2005 when he heard that a new highway was going to be constructed through the property and the land would soon be worth $200,000. The highway project was abandoned in 2014 and the value of the land fell to
a. $0
Sol purchased land as an investment on January 12, 2005 for $85,000. On January 31, 2014, Sol sold the land for $20,000 cash. In addition, the purchaser assumed the mortgage of $70,000 on the land. What is the amount of the realized gain or loss on the sa
c. $5,000 gain
In December, 2014, Ben and Jeri (married, filing jointly) have a long-term capital gain of $55,000 on the sale of stock held for 4 years. They have no other capital gains and losses for the year. After standard deduction and personal exemptions, their ord
b. $18,413
If property is inherited by a taxpayer,
a. To the recipient, the basis for the property is the same as the basis to the decedent.
b. At sale date, the basis of the property to the recipient differs depending on whether the property was sold at a gain or a
d. In general, the basis to the recipient is the fair market value at the decedent's date of death.
Joseph exchanged land (tax basis of $34,000), that he had held for 4 years as an investment, for similar land valued at $42,000 which was owned by Adrian. In connection with this transaction, Adrian assumed Joseph's $11,000 mortgage. As a result of this t
c. $11,000
In 2014, Paul, a single taxpayer, has taxable income of $30,000 exclusive of capital gains and losses. Paul incurred a $1,000 short-term capital loss and a $5,000 long-term capital loss. What is the amount of his long-term capital loss carryover to 2015?
c. $3,000
Johnny owned a gas station with an adjusted basis of $300,000. After it was destroyed in a fire, he received $560,000 from the insurance company. Within the next year, he bought a new gas station for $500,000. What is Johnny's taxable gain and what is the
c. $60,000; $300,000
Perry acquired raw land as an investment in 2000. The land cost $60,000. In 2014, the land is sold for a total sales price of $120,000, consisting of $10,000 cash and the buyer's note for $110,000. Assume that Perry uses the installment method to recogniz
a. $5,000
For the year 2014, Susan had salary income of $20,000. In addition she reported the following capital transactions during the year:
Long-term capital gain $ 7,000
Short-term capital gain $ 3,000
Long-term capital loss $(2,000)
Short-term capital loss $(4,
c. $24,000
An asset has an original basis of $25,000 and depreciation has been claimed for the asset in the amount of $20,000. If the asset's adjusted basis is $15,000, what is the amount of capital improvements that have been made to the asset?
a. $5,000
b. $10,000
b. $10,000
Which of the following is true of a like-kind exchange:
a. There must be no cash exchanged to qualify.
b. The properties exchanged cannot be personal residences.
c. Office furniture can be exchanged for computers.
d. A new holding period for capital gains
b. The properties exchanged cannot be personal residences.
Sol purchased land as an investment on January 12, 2005 for $85,000. On January 31, 2014, Sol sold the land for $90,000 cash. What is the nature of the gain or loss?
a. Long-term capital loss
b. Long-term capital gain
c. Short-term capital gain
d. Short-t
b. Long-term capital gain
Martha has a net capital loss of $17,000 and other ordinary taxable income of $45,000 for the current year. What is the amount of Martha's capital loss carryforward?
a. $0
b. $10,000
c. $14,000
d. $17,000
e. None of the above
c. $14,000
An asset's adjusted basis is computed as:
a. Original basis + capital improvements - accumulated depreciation.
b. Original basis - capital improvements + accumulated depreciation.
c. Original basis + capital improvements + accumulated depreciation.
d. Ori
a. Original basis + capital improvements - accumulated depreciation.
Which of the following is a capital asset?
a. A literary work held by the author
b. Real estate held by a developer
c. A taxpayer's personal automobile
d. A truck used in a taxpayer's business
e. None of the above
c. A taxpayer's personal automobile
Which one of the following is a capital asset?
a. Accounts receivable
b. Copyright held by the author
c. Securities held for investment
d. Inventories
e. All of the above are capital assets
c. Securities held for investment
On December 31, 2014, Henry, a sole proprietor, sold for $70,000 a machine that was used in his business. The machine had been purchased in a few years ago for $50,000, and when it was sold, it had accumulated depreciation of $15,000 and an adjusted basis
c. Section 1231 gain of $20,000 and ordinary income of $15,000
In 2014, Tim sells Section 1245 property for $28,000 that he had purchased in 2008. Tim has claimed $7,000 in depreciation on the property and originally purchased it for $20,000. How much of the gain is taxable as ordinary income?
a. $7,000
b. $8,000
c.
a. $7,000
Which of the following sales results in a short-term gain/loss?
a. A capital asset bought on June 30, 2013 and sold June 20, 2014.
b. A capital asset bought on July 25, 2013 and sold August 19, 2014.
c. A capital asset bought on September 12, 2007 and sol
a. A capital asset bought on June 30, 2013 and sold June 20, 2014.
Martha has a net capital loss of $20,000 and other ordinary taxable income of $48,000 for the current tax year. What is the amount of Martha's taxable income after deducting the allowed capital loss?
a. $28,000
b. $38,000
c. $42,000
d. $45,000
e. None of
d. $45,000
Perry acquired raw land as an investment in 1997. The land cost $60,000. In 2014, the land is sold for a total sales price of $120,000, consisting of $10,000 cash and the buyer's note for $110,000. If Perry elects to recognize the entire gain in the year
a. $50,000
In 2014, Marc, a single taxpayer, has ordinary income of $35,000. In addition, he has $3,000 in short-term capital gains, short-term capital losses of $6,000, and long-term capital gains of $4,000. What is Marc's adjusted gross income (AGI) for 2014?
a. $
c. $36,000
Carlos bought a building for $113,000 in 2010. He built an addition to the building for $26,000. In 2014, he sold it for $186,000. What was his long-term capital gain?
a. $0
b. $47,000
c. $73,000
d. $99,000
e. $186,000
b. $47,000
Which of the following assets is not a Section 1231 asset?
a. Equipment used in a business
b. The unharvested crops of a farmer
c. Timber
d. Inventory
e. All of the above are Section 1231 assets
d. Inventory
In January 2014, Keyaki Construction Company exchanged an old truck, which cost $53,000 and had accumulated depreciation of $16,000, for a new truck having a fair market value of $65,000. In connection with the exchange, Keyaki paid $32,000 in cash. What
d. $53,000 - $16,000 + $32,000 = $69,000
Which one of the following qualifies as a like-kind exchange?
a. A chicken held by a farmer exchanged for medical services.
b. A home owned and lived in by a taxpayer exchanged for a new personal residence.
c. IBM stock exchanged for Exxon stock.
d. A Dod
d. A Dodge Ram pickup truck used in business traded in for a new Ford 250 pickup truck also intended for business use.