Question 1

Which of the following events causes the purchaser of an option to add the cost of the option to the basis of the property to which the option relates?

Accepted Answer

When an option is exercised, the cost of the option is added to the basis of the property to which it relates. This is because the option cost is considered part of the overall cost of acquiring the property. If the option is sold or lapses, the cost of the option is not added to the basis of the property.

Question 2

In 2013, Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction. In 2014, Jenny has a $18,000 0%/15%/20% long-term capital gain and no other capital gain or loss transactions. Which of the statements below is correct?

Accepted Answer

The $12,000 net short-term capital loss from 2013 can be carried over to 2014, reducing the $18,000 long-term capital gain to $6,000 ($18,000 - $12,000). Since the long-term capital gain is greater than the $3,000 capital loss deduction, Jenny can use the entire deduction, resulting in a net capital gain of $3,000 ($6,000 - $3,000). Therefore, option B is correct, and the remaining options are incorrect.

Question 3

Gold Company signs a 13-year franchise agreement with Silver. Silver retained significant powers, rights, and a continuing interest. Gold Company (the franchisee) makes noncontingent payments of $18,000 per year for the first four years of the franchise. Gold Company also pays a contingent fee of 2% of gross sales every month. Which of the following statements is correct?

Accepted Answer

The answer of Gold Company signs a 13-year franchise agreement...

Question 4

Hank inherited Green stock from his mother when she died. The mother had a tax basis of $366,000 for the Green stock when she died and the Green stock was worth $437,000 at the date of her death. Which of the statements below is correct?

Accepted Answer

The answer of Hank inherited Green stock from his mother...

Question 5

Which of the following is correct concerning short sales of stock?

Accepted Answer

The answer of Which of the following is correct concerning...

Question 6

In 2014, Satesh has $5,000 short-term capital loss, $13,000 0%/15%/20% long-term capital gain, and $7,000 qualified dividend income. Satesh is single and has other taxable income of $15,000. Which of the following statements is correct?

Accepted Answer

The net long­term capital gain is $8,000 ($13,000 0%/15%/20% long­term capital gain - $5,000 short­term capital loss).The $7,000 qualified dividend income is added to the 0%/15%/20% net long-term capital gain and the $15,000 total is eligible for the 0%/15%/20% alternative tax rate.

Question 7

Virgil was leasing an apartment from Marple, Inc. Marple paid Virgil $1,000 to cancel his lease and move out so that Marple could demolish the building. As a result:

Accepted Answer

When Virgil received the $1,000 from Marple, it was considered a payment for the cancellation of the lease. This amount is not deductible as a loss because Virgil willingly agreed to the cancellation. Therefore, this $1,000 would be considered a capital gain for Virgil.

Question 8

Seamus had $16,000 of net short-term capital loss in 2013. In 2014, Seamus has $17,000 of long-term capital loss and $26,000 of long-term capital gain. Which of the following statements is correct?

Accepted Answer

Seamus had a net short-term capital loss of $16,000 in 2013. This loss can be carried over to offset capital gains and up to $3,000 of ordinary income in future tax years.

In 2014, Seamus has a long-term capital loss of $17,000 and a long-term capital gain of $26,000. These amounts can be netted against each other, leaving a net long-term capital gain of $9,000.

Since Seamus did not have any short-term capital gains in 2014, the $16,000 short-term capital loss from 2013 can be used to offset the $26,000 long-term capital gain, leaving a remaining net long-term capital gain of $10,000 ($26,000 - $16,000).

Therefore, Seamus has a net long-term capital gain of $9,000 and a net short-term capital loss of $4,000 ($16,000 - $12,000).

Question 9

Ryan has the following capital gains and losses for 2014: $6,000 STCL, $5,000 28% gain, $2,000 25% gain, and $6,000 0%/15%/20% gain. Which of the following is correct:

Accepted Answer

Ryan's net capital gain is calculated by offsetting the $6,000 short-term capital loss (STCL) against the gains. The $6,000 STCL first offsets the $5,000 28% gain, leaving a $1,000 STCL. This $1,000 STCL then offsets $1,000 of the $2,000 25% gain, leaving $1,000 of the 25% gain. The $6,000 0%/15%/20% gain remains unaffected. Thus, the net capital gain is $1,000 25% gain and $6,000 0%/15%/20% gain.

Question 10

In 2014, Mark has $18,000 short-term capital loss, $7,000 28% gain, and $6,000 0%/15%/20% gain. Which of the statements below is correct?

Accepted Answer

Mark can use up to $3,000 of the short-term capital loss to offset ordinary income. The remaining $15,000 of short-term capital loss will carry forward to future years. 
The net long-term capital gain is $7,000 + $6,000 = $13,000. 
Therefore, Mark's taxable capital gain is $13,000 - $3,000 = $10,000.

Question 11

Martha has both long-term and short-term 2013 capital gains and losses. The result of netting these gains and losses is a net long­term capital loss. Martha has no qualified dividend income. Also, Martha's 2013 taxable income puts her in the 28% tax bracket. Which of the following is correct?

Accepted Answer

Martha will use Schedule D to report her capital gains and losses (A), she will not benefit from special treatment for long-term capital gains because she has a net capital loss (B), and she can deduct up to $3,000 of her net capital loss against other income (C).

Question 12

On June 1, 2014, Brady purchased an option to buy 1,000 shares of General, Inc. at $40 per share. He purchased the option for $3,000. It was to remain in effect for five months. The market experienced a decline during the latter part of the year, so Brady decided to let the option lapse as of December 1, 2014. On his 2014 tax return, what should Brady report?

Accepted Answer

Since Brady decided to let the option lapse, he did not exercise it and did not purchase any shares of General, Inc. Therefore, he incurred a $3,000 short-term capital loss on the option purchase.

Question 13

Tan, Inc., sold a forklift on April 12, 2014, for $8,000 (its FMV) to its 100% shareholder, Ashley. Tan's adjusted basis for the forklift was $12,000. Ashley's holding period for the forklift:

Accepted Answer

The answer of Tan, Inc., sold a forklift on April...

Question 14

In 2014, an individual taxpayer has $863,000 of taxable income that includes $48,000 of 0%/15%/20% long-term capital gain. Which of the following statements is correct?

Accepted Answer

The answer of In 2014, an individual taxpayer has $863,000...

Question 15

Which of the following comparisons is correct?

Accepted Answer

The answer of Which of the following comparisons is correct?
...

Question 16

On June 10, 2014, Ebon, Inc. acquired an office building as a result of a like-kind exchange. Ebon had given up a factory building that it had owned for 26 months as part of the like-kind exchange. Which of the statements below is correct?

Accepted Answer

In a like-kind exchange, the holding period of the property received includes the holding period of the property given up.

Question 17

Cason is filing as single and has 2014 taxable income of $36,000 which includes $34,000 of 0%/15%/20% net long- term capital gain. What is his tax on taxable income using the alternative tax method?

Accepted Answer

Cason's taxable income includes $34,000 of long-term capital gain, which is taxed at 0% up to the 15% tax bracket limit. The remaining $2,000 of ordinary income is taxed at the 10% rate, resulting in $200 tax.

Question 18

Hiram is a computer engineer and, while unemployed, invents a switching device for computer networks. He patents the device, but does not reduce it to practice. Hiram has a zero tax basis for the patent. In consideration of
$800,000 plus a $1 royalty per device sold, Hiram assigns the patent to a computer manufacturing company. Hiram assigned all substantial rights in the patent. Which of the following is correct?

Accepted Answer

Hiram has assigned all substantial rights in the patent, which means he has transferred ownership and any potential income derived from the patent. As a result, the lump sum payment and royalty payments are both considered capital gains for Hiram. Since Hiram had the patent for an unspecified period of time, it is assumed to be a long-term capital gain.

Question 19

A lessor is paid $45,000 by its commercial tenant as a lease cancellation fee. The tenant wanted to get out of its lease so it could move to a different building. The lessor had held the lease for three years before it was canceled. The lessor had a zero tax basis for the lease. The lessor has received:

Accepted Answer

The $45,000 lease cancellation fee is considered ordinary income for the lessor since they had a zero tax basis for the lease. Therefore, they will need to pay taxes on this income as part of their normal income tax filing.

Question 20

Sara is filing as head of household and has 2014 taxable income of $57,000 which includes $3,000 of net long-term capital gain. The net long-term capital gain is made up of $1,000 25% gain and $2,000 0%/15%/20% gain. What is the tax on her taxable income using the alternative tax method?

Accepted Answer

The tax on the ordinary income ($54,000) is calculated using the head of household tax rates. The $2,000 of 0%/15%/20% gain is taxed at 15%, and the $1,000 of 25% gain is taxed at 25%. The total tax is $8,463.

Quiz 14: Property Transactions: Capital Gains and Losses, 1231, and Recapture Provisions

Which of the following events causes the purchaser of an option to add the cost of the option to the basis of the property to which the option relates?

In 2013, Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction. In 2014, Jenny has a $18,000 0%/15%/20% long-term capital gain and no other capital gain or loss transactions. Which of the statements below is correct?

Hank inherited Green stock from his mother when she died. The mother had a tax basis of $366,000 for the Green stock when she died and the Green stock was worth $437,000 at the date of her death. Which of the statements below is correct?

Which of the following is correct concerning short sales of stock?

In 2014, Satesh has $5,000 short-term capital loss, $13,000 0%/15%/20% long-term capital gain, and $7,000 qualified dividend income. Satesh is single and has other taxable income of $15,000. Which of the following statements is correct?

Virgil was leasing an apartment from Marple, Inc. Marple paid Virgil $1,000 to cancel his lease and move out so that Marple could demolish the building. As a result:

Seamus had $16,000 of net short-term capital loss in 2013. In 2014, Seamus has $17,000 of long-term capital loss and $26,000 of long-term capital gain. Which of the following statements is correct?

Ryan has the following capital gains and losses for 2014: $6,000 STCL, $5,000 28% gain, $2,000 25% gain, and $6,000 0%/15%/20% gain. Which of the following is correct:

In 2014, Mark has $18,000 short-term capital loss, $7,000 28% gain, and $6,000 0%/15%/20% gain. Which of the statements below is correct?

Martha has both long-term and short-term 2013 capital gains and losses. The result of netting these gains and losses is a net longterm capital loss. Martha has no qualified dividend income. Also, Martha's 2013 taxable income puts her in the 28% tax bracket. Which of the following is correct?

Tan, Inc., sold a forklift on April 12, 2014, for $8,000 (its FMV) to its 100% shareholder, Ashley. Tan's adjusted basis for the forklift was $12,000. Ashley's holding period for the forklift:

In 2014, an individual taxpayer has $863,000 of taxable income that includes $48,000 of 0%/15%/20% long-term capital gain. Which of the following statements is correct?

Which of the following comparisons is correct?

On June 10, 2014, Ebon, Inc. acquired an office building as a result of a like-kind exchange. Ebon had given up a factory building that it had owned for 26 months as part of the like-kind exchange. Which of the statements below is correct?

Cason is filing as single and has 2014 taxable income of $36,000 which includes $34,000 of 0%/15%/20% net long- term capital gain. What is his tax on taxable income using the alternative tax method?

Sara is filing as head of household and has 2014 taxable income of $57,000 which includes $3,000 of net long-term capital gain. The net long-term capital gain is made up of $1,000 25% gain and $2,000 0%/15%/20% gain. What is the tax on her taxable income using the alternative tax method?

Quiz 14: Property Transactions: Capital Gains and Losses, 1231, and Recapture Provisions

Which of the following events causes the purchaser of an option to add the cost of the option to the basis of the property to which the option relates?

In 2013, Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction. In 2014, Jenny has a $18,000 0%/15%/20% long-term capital gain and no other capital gain or loss transactions. Which of the statements below is correct?

Hank inherited Green stock from his mother when she died. The mother had a tax basis of $366,000 for the Green stock when she died and the Green stock was worth $437,000 at the date of her death. Which of the statements below is correct?

Which of the following is correct concerning short sales of stock?

In 2014, Satesh has $5,000 short-term capital loss, $13,000 0%/15%/20% long-term capital gain, and $7,000 qualified dividend income. Satesh is single and has other taxable income of $15,000. Which of the following statements is correct?

Virgil was leasing an apartment from Marple, Inc. Marple paid Virgil $1,000 to cancel his lease and move out so that Marple could demolish the building. As a result:

Seamus had $16,000 of net short-term capital loss in 2013. In 2014, Seamus has $17,000 of long-term capital loss and $26,000 of long-term capital gain. Which of the following statements is correct?

Ryan has the following capital gains and losses for 2014: $6,000 STCL, $5,000 28% gain, $2,000 25% gain, and $6,000 0%/15%/20% gain. Which of the following is correct:

In 2014, Mark has $18,000 short-term capital loss, $7,000 28% gain, and $6,000 0%/15%/20% gain. Which of the statements below is correct?

Martha has both long-term and short-term 2013 capital gains and losses. The result of netting these gains and losses is a net long­term capital loss. Martha has no qualified dividend income. Also, Martha's 2013 taxable income puts her in the 28% tax bracket. Which of the following is correct?

Tan, Inc., sold a forklift on April 12, 2014, for $8,000 (its FMV) to its 100% shareholder, Ashley. Tan's adjusted basis for the forklift was $12,000. Ashley's holding period for the forklift:

In 2014, an individual taxpayer has $863,000 of taxable income that includes $48,000 of 0%/15%/20% long-term capital gain. Which of the following statements is correct?

Which of the following comparisons is correct?

On June 10, 2014, Ebon, Inc. acquired an office building as a result of a like-kind exchange. Ebon had given up a factory building that it had owned for 26 months as part of the like-kind exchange. Which of the statements below is correct?

Cason is filing as single and has 2014 taxable income of $36,000 which includes $34,000 of 0%/15%/20% net long- term capital gain. What is his tax on taxable income using the alternative tax method?

Sara is filing as head of household and has 2014 taxable income of $57,000 which includes $3,000 of net long-term capital gain. The net long-term capital gain is made up of $1,000 25% gain and $2,000 0%/15%/20% gain. What is the tax on her taxable income using the alternative tax method?

Martha has both long-term and short-term 2013 capital gains and losses. The result of netting these gains and losses is a net longterm capital loss. Martha has no qualified dividend income. Also, Martha's 2013 taxable income puts her in the 28% tax bracket. Which of the following is correct?