Question 1

Sheldon had salary income of $40,000.In addition,he had the following gains and losses on his property transactions: Long-term capital gain = $14,000; long-term capital loss = $6,000; short-term capital gain = $4,000; short-term capital loss = $8,000.If Sheldon has no other income items,what is his total income before any deductions for the year?
A)$44,000
B)$47,000
C)$48,000
D)$52,000

Accepted Answer

$14,000 LTCG - $6,000 LTCL = $8,000 LTCG; $4,000 STCG - $8,000 STCL = $4,000 STCL; $8,000 LTCG - $4,000 STCL = $4,000 LTCG; $40,000 + $4,000 = $44,000.

Question 2

In what order are capital gains subject to the 15%/20%,25%,and 28% capital gains included in taxable income in the determination of the tax liability?

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Question 3

Donza Company has unrecaptured Section 1231 losses from the two previous years totaling $25,000 and a $32,000 Section 1231 gain in the current year.Based on this information,all of the following statements concerning Donza's taxable income for the current year are correct except:
A)Taxable ordinary income is $25,000
B)Taxable capital gain is $7,000
C)The amount taxable as ordinary income is the lesser of the unrecaptured losses or the current Section 1231 gain
D)Unrecaptured Section 1231 losses are taxable as capital gain

Accepted Answer

Unrecaptured Section 1231 losses are not taxable as capital gains; instead, they are used to offset current year Section 1231 gains, recharacterizing them as ordinary income to the extent of the previous losses.

Question 4

What are the basic long-term capital gain tax rates and to which asset gains do they apply?

Accepted Answer

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Question 5

Which of the following is correct?
A)The Section 1231 lookback rule converts potential long-term capital gain into ordinary income.
B)The Section 1231 lookback rule converts ordinary gain into ordinary loss.
C)The Section 1231 lookback rule converts casualty gain into long-term capital gain.
D)The Section 1231 lookback rule applies only to realty.

Accepted Answer

The Section 1231 lookback rule applies to gains and losses from the sale or exchange of property used in a trade or business and converts potential long-term capital gains into ordinary income if the taxpayer had a net loss in the previous five years from sales or exchanges of Section 1231 property. This rule does not apply only to realty and does not convert ordinary gain into ordinary loss or casualty gain into long-term capital gain.

Question 6

What are the basic differences between Section 1245 and Section 1250 depreciation recapture?

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Question 7

What are the carryover provisions for unused capital losses applicable to individuals?
A)Carry back 3 years and forward 5 years
B)Carry back 2 years and forward 20 years
C)Carry forward 20 years only
D)Carry forward indefinitely

Accepted Answer

Capital losses that cannot be used in the current year can be carried forward indefinitely to be applied against future capital gains.

Question 8

Martone Corporation sells two machines and a warehouse it has been using for storage in the current tax year.Each of the machines cost $25,000 and has an adjusted basis of $11,000 when each was sold for $14,000.The warehouse cost $105,000,has an adjusted basis of $60,000 and is sold for $95,000.All assets were depreciated using MACRS depreciation.What is the amount and type of gain recognized by Martone on the sale of these assets?
A)$6,000 Section 1245 recapture; $35,000 Section 1231 gain
B)$6,000 Section 1245 recapture; $7,000 Section 291 recapture; $28,000 Section 1231 gain
C)$6,000 section 1245 recapture; $35,000 Section 291 recapture
D)$41,000 capital gain

Accepted Answer

($14,000 - $11,000)x 2 = $6,000 Sec.1245 recapture; $95,000 - $60,000 = $35,000 total gain; .20 x $35,000 = $7,000 Sec.Sec.291 recapture; $35,000 - $7,000 = $28,000 Sec.1231 gain

Question 9

Nancy sold her Section 1202 stock for $9,000,000 on August 7,2015.She had purchased the stock nine years ago for $1,500,000.She invested $4,500,000 in other qualifying Section 1202 stock.How will Nancy treat the gain on this sale for tax purposes?

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Question 10

Vanessa bought 2,000 shares of Glenco stock when the company was first formed for $57,000.The company had $900,000 of total capital when formed and the stock qualified as Section 1244 stock.Vanessa sold the stock three years later for $3,000.If Vanessa is single,how much gain or loss does she have on the sale of the stock and how will it be treated by her?

Accepted Answer

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Question 11

Bobsy Company has a $14,000 net Section 1231 gain for the current tax year from its only property transaction.In the previous year,it had a $7,000 net Section 1231 loss.For the current year,the net Section 1231 gain will be taxed as:
A)A $14,000 ordinary income
B)A $14,000 capital income
C)A $7,000 ordinary income and a $7,000 long-term capital gain
D)A $7,000 ordinary income and a $7,000 short-term capital gain

Accepted Answer

Net Section 1231 gains and losses are classified as either ordinary income or long-term capital gain (LTCG). In the previous year, Bobsy Company had a net Section 1231 loss, which is treated as an ordinary loss. In the current year, Bobsy Company has a net Section 1231 gain of $14,000, which will be offset by the previous year's Section 1231 loss of $7,000. The remaining $7,000 net Section 1231 gain will be taxed as $7,000 ordinary income and $7,000 LTCG. Therefore, choice C is correct.

Question 12

Why is the character of a gain or loss on a disposition important? What are the three types of recognized gains or losses that determine their taxation?

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Question 13

What is the effect of the Section 1231 look-back rules?

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Question 14

Brent sold his personal car and some household furniture during the year.He had a $3,000 gain on the car but a $5,000 loss on the furniture.What is his recognized gain or loss included in taxable income as a result of these sales?
A)0
B)$2,000 loss
C)$3,000 gain
D)$5,000 loss

Accepted Answer

$5,000 loss on furniture is not deductible

Question 15

George and Sally sold their primary residence in New Jersey on January 1,2013 after having lived in the home for 20 years.(They used their $500,000 exclusion to avoid recognizing their $289,000 gain on the sale.)They decided to become permanent Florida residents and moved into the condominium they had purchased on January 2,2011 at a foreclosure auction.Unfortunately,Sally missed all of her friends and family in New Jersey and in the latter part of 2015,they put the condominium up for sale and they sold it on January 2,2016.They had purchased the condominium for only $65,000 and after putting in improvements at a cost of $21,000,they were able to sell it for $525,000.What is their realized and recognized gain on the sale of the condominium?

Accepted Answer

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Question 16

What is Section 291 recapture?

Accepted Answer

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Question 17

What is depreciation recapture?

Accepted Answer

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Question 18

What did Congress do to close the loophole that allowed a person to exclude the gain on a primary personal residence and then later claim the exclusion on a vacation home that was owned at the same time as the primary residence?

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Question 19

Cliff owned investment stock purchased three years ago for $16,000 and bonds purchased six months ago for $9,800.When he needed money recently,he sold the stock for $13,800 and the bonds for $10,100.What is the amount and type of net gain or loss that Cliff will include in computing his taxable income?
A)$2,200 long-term capital loss
B)$1,900 long-term capital gain
C)$1,900 long-term capital loss
D)$300 short-term capital gain

Accepted Answer

$13,800 - $16,000 = $2,200 LTCL; $10,100 - $9,800 = $300 STCG; $300 STCG - $2,200 LTCL = $1,900 LTCL

Question 20

How are individual and corporate net capital losses treated?

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Quiz 7: Property Dispositions

In what order are capital gains subject to the 15%/20%,25%,and 28% capital gains included in taxable income in the determination of the tax liability?

Donza Company has unrecaptured Section 1231 losses from the two previous years totaling $25,000 and a $32,000 Section 1231 gain in the current year.Based on this information,all of the following statements concerning Donza's taxable income for the current year are correct except:

What are the basic long-term capital gain tax rates and to which asset gains do they apply?

Which of the following is correct?