Deck 10: Property Transactions: Capital Gains and Losses

Question 1

Funds borrowed and used to pay for an asset are not included in the cost until the borrowed funds are repaid.

Answer 1

False

Question 2

Interest incurred during the development and manufacture of a machine must be capitalized.

Answer 2

True

Question 3

For purposes of calculating depreciation,property converted from personal use to business use will take on a basis equal to the greater of its FMV or its adjusted basis on the date of the conversion.

Answer 3

False

Question 4

An uncle gifts a parcel of land to his niece,and he has to pay gift taxes. The land has appreciated substantially since he purchased it 20 year ago. A portion of gift taxes paid by the uncle will increase the niece's basis of the land.

Question 5

On January 1 of this year,Brad purchased 100 shares of stock at $4,000.By December 31 of this year,the stock had declined in value to $2,200,but Brad still held the shares.Brad has recognized a $1,800 loss for tax purposes this year.

Question 6

A taxpayer sells an asset with a basis of $25,000 to an unrelated party for $28,000.The taxpayer has a realized gain of $3,000.

Question 7

Gains and losses are recognized when property is disposed of by gift or bequest.

Question 8

A taxpayer purchased an asset for $50,000 several years ago. He is now planning to sell it. Under the recovery of basis doctrine the taxpayer will not recognize any gain or pay any related taxes unless he sells the asset for more than $50,000.

Question 9

Capitalization of interest is required if debt is incurred to construct real property.

Question 10

Unless the alternate valuation date is elected,the basis of property received from a decedent is generally the property's fair market value at the date of decedent's death.

Question 11

Rick sells stock of Ty Corporation,which has an adjusted basis of $20,000,for $22,000.He pays a sales commission of $500.In computing his gain or loss,the amount realized by Rick is $1,500.

Question 12

The initial adjusted basis of property depends upon how the property is acquired.

Question 13

Losses are generally deductible if incurred in carrying on a trade or business or incurred in an activity engaged in for profit.

Question 14

All realized gains and losses are recognized for tax purposes.

Question 15

Expenditures which do not add to the value or prolong the life of property may be expensed in the year in which they are incurred.

Question 16

If stock sold or exchanged is not specifically identified,the FIFO (first-in,first-out)method of identification must be used.

Question 17

With regard to taxable gifts after 1976,no gift tax is added to the basis of the property if the donor's basis is greater than the FMV of the property.

Question 18

Five different capital gain tax rates could apply to long-term capital assets sold by noncorporate taxpayers.

Question 19

If Houston Printing Co.purchases a new printing press during the current year for $30,000,pays sales taxes of $2,000,and pays $1,000 for installation,the cost basis for the printing press is $33,000.

Question 20

All recognized gains and losses must eventually be classified either as capital or ordinary.

Question 21

In a basket purchase,the total cost is apportioned among the assets purchased according to the relative adjusted basis of the assets.

Question 22

Galvin Corporation has owned all of the stock of Rialto Corporation for five years.Rialto Corporation has been actively engaged in manufacturing in Kansas,but it is now bankrupt,and the stock is worthless.Galvin Corporation will recognize a long-term capital loss.

Question 23

Stock purchased on December 15,2013,which becomes worthless in March 2014 produces a STCL since the holding period is one year or less.

Question 24

Unlike an individual taxpayer,the corporate taxpayer does not utilize the 25% and 28% specialty capital gain rates,but it does apply the 15% tax rate to adjusted net capital gain.

Question 25

Corporate taxpayers may offset capital losses only against capital gains and may carry excess losses back three years and then forward five years.

Question 26

If the taxpayer's net long-term capital losses exceed the net short-term capital gains,the excess may be offset against ordinary income up to $3,000 per year. Any excess losses over $3,000 may be carried over indefinitely.

Question 27

Section 1221 of the Code includes a comprehensive list of assets properly classified as capital assets.

Question 28

Taxpayers who own mutual funds recognize their share of capital gains even if no distributions are received.

Question 29

If the stock received as a nontaxable stock dividend is not the same type as the stock owned prior to the dividend,the allocation of basis is based on relative fair market values of the stock.

Question 30

Generally,gains resulting from the sale of collectibles such as antiques,stamps,or artwork are taxed at a maximum rate of 25%.

Question 31

Net long-term capital gains receive preferential tax treatment if they exceed net short-term capital losses.

Question 32

Normally,a security dealer reports ordinary income on the sale of securities unless it is specifically identified as a security being held for investment.

Question 33

A nonbusiness bad debt is deductible only in the year in which the debt becomes totally worthless.

Question 34

Adjusted net capital gain is taxed at 15% for taxpayers with marginal tax rates of 15% or higher,but less than 39.6%.

Question 35

When a taxpayer has NSTCL and NLTCG,the loss is offset against NLTCG from the 28% group,then NLTCG from the 25% group,and finally against NLTCG from the 15% or 20% group.

Question 36

A building used in a trade or business is a capital asset.

Question 37

Bad debt losses from nonbusiness debts are deductible as short-term or long-term capital losses depending on how long the debt was outstanding.

Question 38

Section 1221 specifically states that inventory or property held primarily for sale to customers is not classified as a capital asset of the trade or business.

Question 39

Gain on sale of a patent by an inventor generally is ordinary income.

Question 40

If a capital asset held for one year or more is sold at a gain,the gain is classified as long-term capital gain.

Question 41

If property received as a gift has a basis of the fair market value of the property on the date of the gift,the donee's holding period starts on the day after the date of the gift.

Question 42

Kathleen received land as a gift from her grandfather.At the time of the gift,the land had a FMV of $105,000 and an adjusted basis of $85,000 to Kathleen's grandfather.The grandfather did not have any gift taxes due. One year later,Kathleen sold the land for $110,000.What was her gain or (loss)on this transaction?

A)no gain or loss
B)($ 5,000)
C)$20,000
D)$25,000

Question 43

The holding period of property received from a decedent is based on the actual time the property is held by the decedent.

Question 44

Dennis purchased a machine for use in his business.Mr.Dennis' costs in connection with this purchase were as follows: What is the amount of Mr.Dennis' basis in the machine?

A)$33,000
B)$40,400
C)$41,900
D)$46,100

Question 45

During the current year,Tony purchased new car wash equipment for use in his service station business.Tony's costs in connection with the new equipment this year were as follows: What is Tony's basis in the car wash equipment?

A)$49,000
B)$49,600
C)$52,600
D)$54,600

Question 46

The gain or loss on an asset purchased on March 31,2013,and sold on March 31,2014,is classified as short-term.

Question 47

Jack exchanged land with an adjusted basis of $65,000 subject to a liability of $22,000 for $50,000 (FMV)of stock owned by Hayden.Hayden takes the land subject to the liability.Jack incurs $500 of selling expenses.What is the amount of Jack's realized gain on the exchange?

A)($14,000)loss
B)($14,500)loss
C)$6,500 gain
D)$7,000 gain

Question 48

Jordan paid $30,000 for equipment two years ago and has claimed total depreciation deductions of $15,600 for the two years.The cost of repairs during the same time period was $2,000 while a major overhaul which extended the life of the equipment cost $7,000.What is Jordan's adjusted basis in the equipment at the end of the two-year period?

A)$14,400
B)$16,400
C)$21,400
D)$30,000

Question 49

Allison buys equipment and pays cash of $50,000,signs a note of $10,000 and assumes a liability on the property for $3,000.Also,Allison pays an installation cost of $500 and a delivery cost of $800.Allison's basis in the asset is

A)$60,000.
B)$63,000.
C)$63,500.
D)$64,300.

Question 50

Dale gave property with a basis of $16,000 to Sarah when it had a FMV of $12,000.No gift taxes were due. Sarah later sold the property for $22,000 resulting in a recognized gain of

A)$0.
B)$4,000.
C)$6,000.
D)$12,000.

Question 51

Will exchanges a building with a basis of $35,000,and subject to a liability of $30,000,for land with a FMV of $50,000 owned by Jane. Jane takes the land subject to the liability. The amount realized by Will is

A)$30,000.
B)$35,000.
C)$50,000.
D)$80,000.

Question 52

Kathleen received land as a gift from her grandfather.At the time of the gift,the land had a FMV of $85,000 and an adjusted basis of $110,000 to Kathleen's grandfather.One year later,Kathleen sold the land for $80,000.What was her gain or (loss)on this transaction?

A)no gain or loss
B)($5,000)
C)$5,000
D)$30,000

Question 53

Terra Corp.purchased a new enterprise software system and incurred the following costs: What is Terra Corp.'s basis in the software system?

A)$800,000
B)$805,000
C)$811,000
D)$820,000

Question 54

Because of the locked-in effect,high capital gains tax rates may discourage taxpayer's from selling appreciated capital assets.

Question 55

Which one of the following does not affect the adjusted basis of a house held as rental property?

A)depreciation deduction
B)adding a new room to the house
C)painting of more than 50% of the rooms in the home
D)installation of a completely new heating system

Question 56

Antonio owns land held for investment with a basis of $28,000.The city of Lafayette exercises the right of eminent domain and Antonio receives a payment of $48,000.What is Antonio's realized gain?

A)$0
B)$20,000
C)$28,000
D)$48,000

Question 57

Edward purchased stock last year as follows: In April of this year,Edward sells 80 shares for $250.Edward cannot specifically identify the stock sold.The basis for the 80 shares sold is

A)$160.
B)$184.
C)$216.
D)$240.

Question 58

Empire Corporation purchased an office building for $500,000 cash on April 1.Prior to renting it out to tenants on July 1,Empire spent $200,000 on materials and labor to renovate the property.It funded $50,000 of the renovation cost with its own funds and borrowed the remaining $150,000.As of July 1,$2,000 of interest had been paid to the bank,but none of the principal had been repaid.The basis of the building on July 1 is

A)$500,000.
B)$700,000.
C)$702,000.
D)$502,000.

Question 59

Michelle purchased her home for $150,000,and subsequently added a garage costing $25,000 and a new porch costing $5,000.Repairs to the home's plumbing cost $1,000.The adjusted basis in the home is

A)$150,000.
B)$151,000.
C)$180,000.
D)$181,000.

Question 60

Richard exchanges a building with a basis of $35,000,and subject to a liability of $25,000,for land with a FMV of $50,000 owned by Bill. Bill takes the building subject to the liability.What is the amount of Richard's realized gain?

A)$0
B)$15,000
C)$25,000
D)$40,000

Question 61

In 2011 Toni purchased 100 shares of common stock in Blue Corporation for $5,280.In 2012,Blue declared a stock dividend of one share of its common stock for each 10 shares held.This year,2014,Blue's common stock split 2 for 1 at a time when the FMV was $80 a share.What is Toni's basis in each of her shares of the Blue Corporation stock if both distributions were tax-free?

A)$24 per share
B)$48 for 110 shares and $0 for all additional shares
C)$52.80 for 100 shares and $0 for all additional shares
D)$80 per share

Question 62

In a community property state,jointly owned property left to the surviving spouse will have a basis after the estate is settled equal to

A)the decedent's basis before death.
B)the total fair market value of the entire property at the date of death (if the alternative valuation date was not elected).
C)half of the fair market value of the entire property at the date of death (if the alternative valuation date was not elected).
D)half of the basis just before death,plus half of the fair market value at the date of death (if the alternative valuation date was not elected).

Question 63

Terrell and Michelle are married and living in New York,which is a not a community property state.They jointly own property with an adjusted basis of $240,000.On December 2 of this year,Michelle died when the property had a fair market value of $260,000.Terrell's basis in the property after Michelle's death is

A)$0.
B)$240,000.
C)$250,000.
D)$260,000.

Question 64

Joycelyn gave a diamond necklace to her granddaughter Emma.Joycelyn had purchased the necklace in 1980 for $15,000.The FMV of the necklace at the time of the gift was $44,000.After deducting the annual exclusion,the amount of the gift was $30,000.Gift taxes of $10,000 were paid.What is Emma's adjusted basis in the necklace?

A)$15,000
B)$24,667
C)$25,000
D)$44,000

Question 65

Billy and Sue are married and live in Texas,a community property state.They jointly own real property with an adjusted basis of $200,000.When the property has a FMV of $450,000,Billy dies leaving all of the property to Sue.If she later sells the property for $650,000,what is Sue's gain on the sale?

A)$200,000
B)$225,000
C)$325,000
D)$450,000

Question 66

Brad owns 100 shares of AAA Corporation with a basis of $6,000 and a FMV of $24,000.Brad receives 15 stock rights as a nontaxable distribution with a total FMV of $6,000.Brad allows the stock rights to expire.Brad's loss recognized and the basis of the original 100 shares after expiration of the stock rights is

A)$0 and $4,800.
B)$0 and $6,000.
C)($1,200)and $4,800.
D)($1,200)and $6,000.

Question 67

Melody inherited 1,000 shares of Corporation Zappa stock from her mother who died on March 4 of the current year.Her mother paid $30 per share for the stock on September 2,2005.The FMV of the stock on the date of death was $65 per share.On September 4 of the current year,the FMV of the stock was $70 per share.Melody sold the stock for $85 per share on December 3.The estate qualified for,and the executor elected,the alternate valuation method for these and other assets in the estate.An estate tax return was filed.What was Melody's basis in the stock on the date of the sale?

A)$ 30,000
B)$ 65,000
C)$ 70,000
D)$ 85,000

Question 68

DeMarcus and Brianna are married and live in a common law state.They jointly own real property with an adjusted basis of $200,000.When the property has a FMV of $450,000,DeMarcus dies leaving all of the property to Brianna.If she later sells the property for $650,000,what is Brianna's gain on the sale?

A)$200,000
B)$225,000
C)$325,000
D)$450,000

Question 69

Dustin purchased 50 shares of Short Corporation for $500.During the current year,Short declared a 10% stock dividend.What is the basis per share before and after the stock dividend is distributed?

A)
B)
C)
D)

Question 70

Monte inherited 1,000 shares of Corporation Zero stock from his father who died on March 4 of the current year.His father paid $30 per share for the stock on September 2,2005.The FMV of the stock on the date of death was $50 per share.On September 4 this year,the FMV of the stock was $55 per share.The executor did not elect the alternate valuation date.Monte sold the stock for $65 per share on December 3.What is the amount and nature of any gain or loss?

A)$ 10,000 LTCG
B)$ 35,000 LTCG
C)$ 15,000 LTCG
D)$ 15,000 STCG

Question 71

If a nontaxable stock dividend is received and is not the same type of stock as that owned before the dividend,the original stock's basis is allocated to all shares

A)based on the par value of the stock.
B)equally to all shares owned after the stock dividend.
C)based on relative fair market values at the time of the stock dividend.
D)none of the above.

Question 72

Douglas and Julie are a married couple who live in Louisiana,a community property state.They jointly own property with an adjusted basis of $140,000.On December 2 of this year,Julie died when the property had a fair market value of $160,000.Douglas's basis in the property after Julie's death is

A)$0.
B)$140,000.
C)$150,000.
D)$160,000.

Question 73

In a common law state,jointly owned property left to the surviving spouse will have a basis after the estate is settled equal to

A)the decedent's basis before death.
B)the total fair market value of the entire property at the date of death (the alternative valuation date was not elected).
C)half of the fair market value of the entire property at the date of death (the alternative valuation date was not elected).
D)half of the basis just before death,plus half of the fair market value at the date of death (the alternative valuation date was not elected).

Question 74

David gave property with a basis of $133,000 to Hannah when the property had a FMV of $100,000 and paid gift taxes of $8,000.If Hannah later sells the property for $140,000,Hannah's basis (to determine gain)in the property immediately before the sale is

A)$100,000.
B)$108,000.
C)$133,000.
D)$141,000.

Question 75

During the current year,Don's aunt Natalie gave him a house.At the time of the gift,the house had a FMV of $144,000 and his aunt's adjusted basis was $133,000.After deducting the annual exclusion,the amount of the gift was $130,000.His aunt paid a gift tax of $20,000 on the house.What is Don's basis in the house for purposes of determining gain?

A)$130,000
B)$133,000
C)$134,692
D)$144,000

Question 76

Josh purchases a personal residence for $278,000 but subsequently converts the property to rental property when its FMV is $275,000.Assume depreciation of $65,000 has been deducted after conversion to rental use.If Josh sells the property for $280,000,his gain or loss will be

A)$2,000 gain.
B)$5,000 gain.
C)$67,000 gain.
D)$70,000 gain.

Question 77

In the current year,Andrew received a gift of property from his uncle.At the time of the gift,the property had a FMV of $114,000 and an adjusted basis to his uncle of $70,000.After deducting the annual exclusion,the amount of the gift was $100,000.Andrew's uncle paid a gift tax on the property of $24,000.What is the amount of Andrew's basis in the property?

A)$70,000
B)$80,560
C)$94,000
D)$114,000

Question 78

Tina purchases a personal residence for $278,000,but subsequently converts the property to rental property when its FMV is $275,000.Assume depreciation of $65,000 has been deducted after conversion to rental use.If Tina sells the property for $200,000,her realized gain or loss will be

A)($10,000)loss.
B)($13,000)loss.
C)($75,000)loss.
D)($78,000)loss.

Question 79

Bob owns 100 shares of ACT Corporation common stock with a basis of $3,500 and a FMV of $12,000.Bob receives 10 stock rights as a nontaxable distribution,and no basis is allocated to the stock rights.With each stock right,Bob may acquire one share of stock for $25.Bob exercises all 10 stock rights.The total basis of the newly acquired stock is

A)$ 0.
B)$ 250.
C)$ 350.
D)$1,200.

Question 80

Jessica owned 200 shares of OK Corporation with a basis of $12,000 and a FMV of $24,000.Jessica received 20 stock rights as a nontaxable distribution with a total FMV of $8,000.Jessica sold the stock rights for $4,000.Jessica's gain or loss on the sale was

A)$1,000.
B)$3,000.
C)$4,000.
D)($4,000).