Question 1

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.

Accepted Answer

The realized gain is the amount by which the selling price exceeds the basis, so in this case, the realized gain is $28,000 - $25,000 = $3,000.

Question 2

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

Accepted Answer

This is a general rule in the tax code. However, there may be limitations or restrictions on the amount of losses that can be deducted depending on the taxpayer's specific situation.

Question 3

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?

Accepted Answer

C

Question 4

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

Accepted Answer

Painting the rooms in the home does not affect the adjusted basis of the rental property, while depreciation, adding a new room, and installing a new heating system all affect the adjusted basis.

Question 5

All realized gains and losses are recognized for tax purposes.

Accepted Answer

The answer of All realized gains and losses are recognized...

Question 6

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.

Accepted Answer

The cost basis of an asset includes not just the purchase price, but also any additional expenses incurred to make it ready for use, such as sales taxes and installation costs. Therefore, the cost basis for the printing press in this scenario is indeed $33,000.

Question 7

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

Accepted Answer

The initial adjusted basis of property is determined by the method of acquisition. For example, if a property is purchased, the initial adjusted basis is the purchase price plus any associated costs such as closing costs, legal fees, and title insurance. If the property is inherited, the initial adjusted basis is the fair market value of the property at the time of the previous owner's death.

Question 8

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

Accepted Answer

This is true according to IRS regulations. All gains and losses from the sale or exchange of property must be classified as either capital or ordinary, depending on the nature of the property and the circumstances of the transaction.

Question 9

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?

Accepted Answer

Realized gain is the amount received in excess of the basis. In this case, Antonio received $48,000 - $28,000 = $20,000 in excess of the basis, so his realized gain is $20,000. Therefore, the correct answer is B.

Question 10

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

Accepted Answer

The answer of Michelle purchased her home for $150,000,and subsequently...

Question 11

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

Accepted Answer

The answer of Will exchanges a building with a basis...

Question 12

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?

Accepted Answer

Jordan's adjusted basis can be calculated as follows:
Adjusted basis = Cost of equipment - Depreciation deductions + Cost of improvements and repairs
= $30,000 - $15,600 + $2,000 + $7,000
= $23,400
Therefore, the correct answer is C) $21,400.

Question 13

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?

Accepted Answer

The answer of Richard exchanges a building with a basis...

Question 14

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.

Accepted Answer

The amount realized is calculated as the selling price minus any expenses incurred, so the correct calculation would be: $22,000 - $500 = $21,500. Therefore, the amount realized by Rick would be $1,500 less than that, which is $20,000. So, Rick has neither gained nor lost anything from the sale of the stock.

Question 15

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.

Accepted Answer

The answer of A taxpayer purchased an asset for $50,000...

Question 16

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.

Accepted Answer

This statement is true. Expenditures that do not add value or prolong the life of property can be expensed in the year they are incurred. These are typically considered to be operating expenses rather than capital expenses.

Question 17

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

Accepted Answer

The answer of Gains and losses are recognized when property...

Question 18

Courtney sells a cottage at the lake that the family had used for their summer vacations.The purchaser paid Courtney $100,000 and assumed the mortgage which had a principal balance of $50,000.Courtney had purchased the cottage five years ago for $$170,000.Courtney will recognize

Accepted Answer

The answer of Courtney sells a cottage at the lake...

Question 19

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

Accepted Answer

Long-term capital assets sold by noncorporate taxpayers can be subject to five different tax rates depending on their taxable income. The rates are generally lower than those for short-term capital gains and can range from 0% to 20%.

Question 20

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 realized a $1,800 loss for tax purposes this year.

Accepted Answer

The answer of On January 1 of this year,Brad purchased...

Quiz 10: Property Transactions: Capital Gains and Losses