Question 1

During 2019, an individual had the following gains and losses on property held for the long-term holding period: sale of Orange common stock ($8,000 gain); sale of real property used in the taxpayer's business ($1,800 loss); destruction of real property used in the taxpayer's business by fire ($1,000 loss). Which of the following statements is correct?

Accepted Answer

The sale of real property used in the taxpayer's business is a § 1231 loss, which can be netted against any § 1231 gains (such as the Orange common stock sale gain). The fire loss is also a § 1231 loss and can be netted against any § 1231 gains. However, it cannot be used to reduce the real property sale loss because that loss is not a § 1231 loss.

Question 2

Vertical, Inc., has a 2019 net § 1231 gain of $67,000 and had a $22,000 net § 1231 loss in 2018. For 2019, Vertical's net § 1231 gain is treated as:

Accepted Answer

Net § 1231 gains are treated as long-term capital gains. However, if there was a net § 1231 loss in the previous year, the current year gain is treated as ordinary income to the extent of the prior year loss. Therefore, $22,000 of the current year gain is treated as ordinary income and the remaining $45,000 is treated as long-term capital gain.

Question 3

Which of the following assets held by a manufacturing business is a § 1231 asset?

Accepted Answer

The factory building used in the business and held more than one year is a § 1231 asset. § 1231 assets are assets used in a trade or business, held for more than one year, and are either depreciable or real property. Inventory, office furniture held less than one year, and accounts receivable are not § 1231 assets.

Question 4

Which of the following is not a tax status for an asset?

Accepted Answer

Capital loss asset is not a tax status for an asset; it is a result of selling a capital asset for less than its purchase price. The other options are recognized tax statuses for assets.

Question 5

Spencer has an investment in two parcels of vacant land. Parcel 1 is a capital asset and parcel 2 is a § 1231 asset. Spencer already has a short-term capital loss for the year that he would like to offset with capital gain. He has a §
1231 lookback loss that exceeds the gain from the disposition of either land parcel. Spencer wants to sell only one land parcel: each of them would yield the same amount of gain. The gain that would be recognized exceeds the short-term capital loss Spencer already has. Which of the following statements is correct?

Accepted Answer

Selling parcel 2, a § 1231 asset, could result in the gain being treated as ordinary income due to the § 1231 lookback rule, which requires netting § 1231 gains with prior § 1231 losses that were treated as ordinary losses. This would not offset Spencer's short-term capital loss effectively, potentially leading to a net capital loss. Selling parcel 1, a capital asset, would generate a capital gain that could directly offset his short-term capital loss, avoiding the complications of the § 1231 lookback rule.

Question 6

White Company acquires a new machine for $75,000 and uses it in White's manufacturing operations. A few months after White places the machine in service, it discovers that the machine is not suitable for White's business. White had fully expensed the machine in the year of acquisition using § 179. White sells the machine for $60,000 in the tax year after it was acquired but held the machine only for a total of 10 months. What was the tax status of the machine when it was disposed of and the amount of the gain or loss?

Accepted Answer

The machine is considered an ordinary asset because it was used in White's business operations and was expensed under § 179. The gain of $60,000 is calculated as the sale price ($60,000) minus the adjusted basis ($0, after full expensing under § 179), resulting in a $60,000 gain.

Question 7

Robin Corporation has ordinary income from operations of $30,000, net long-term capital gain of $10,000, and net short-term capital loss of $15,000. What is the taxable income for 2019?

Accepted Answer

The answer of Robin Corporation has ordinary income from operations...

Question 8

Thoren has the following items for the year: $4,000 of short-term capital gain, $5,000 of 0%/15%/20% long-term capital gain, and $1,500 of 28% capital loss. Which of the following is correct?

Accepted Answer

According to IRS rules, capital losses first offset capital gains of the same type (short-term losses offset short-term gains and long-term losses offset long-term gains). Then, any excess loss can be used to offset the other type of gain. In this case, the $1,500 capital loss will first offset the $5,000 long-term capital gain. The remaining $3,500 of long-term gain will then be subject to the 0%, 15%, or 20% tax rates (depending on Thoren's tax bracket). The $4,000 short-term gain will be subject to ordinary income tax rates (also depending on Thoren's tax bracket). Therefore, option B is correct.

Question 9

Violet, Inc., has a 2019 $80,000 long-term capital gain included in its $285,000 taxable income. Which of the following is correct?

Accepted Answer

Corporations do not benefit from a lower tax rate on long-term capital gains like individuals do. Therefore, the $80,000 net capital gain is taxed at the same rate as other corporate income, meaning there is no alternative tax computation for net capital gains for corporations.

Question 10

Which of the following comparisons is correct?

Accepted Answer

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

Question 11

Copper Corporation sold machinery for $47,000 on December 31, 2019. The machinery had been purchased on January 2, 2016, for $60,000 and had an adjusted basis of $41,000 at the date of the sale. For 2019, what should Copper report?

Accepted Answer

The answer of Copper Corporation sold machinery for $47,000 on...

Question 12

Property is acquired in a qualifying like-kind exchange. The acquired property is sold three months after it is acquired. Which of the following is correct?

Accepted Answer

In a like-kind exchange under U.S. tax law, the holding period of the property given up is added to the holding period of the property received. Therefore, even if the acquired property is sold three months after acquisition, the combined holding period could be long-term if the property given up was held long-term.

Question 13

Which of the following is correct?

Accepted Answer

All of the choices are correct because misclassifying or improperly classifying gains or losses can impact adjusted gross income, which is used to determine taxable income. Specifically, Option A and B deal with the misclassification of losses, while Option C and D concern the misclassification of gains.

Question 14

Vertigo, Inc., has a 2019 net § 1231 loss of $64,000 and had a $32,000 net § 1231 gain in 2018. For 2019, Vertigo's net § 1231 loss is treated as:

Accepted Answer

A net § 1231 loss is treated as an ordinary loss, meaning it can offset ordinary income in the current year and can be carried back or forward to offset future or past years' ordinary income.

Question 15

Sara is filing as head of household and has 2018 taxable income of $57,000, which includes $3,000 of net long-tem 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? Note: Use the tax rate schedule rather than the tax table.

Accepted Answer

The answer of Sara is filing as head of household...

Question 16

Verway, Inc., has a 2019 net § 1231 gain of $55,000 and had a $62,000 net § 1231 loss in 2017. For 2019, Verway's net § 1231 gain is treated as:

Accepted Answer

A net § 1231 gain is treated as a long-term capital gain. This means that it is taxed at lower rates than ordinary income. Therefore, the net § 1231 gain of $55,000 should be treated as a $55,000 ordinary gain. The net § 1231 loss in 2017 does not impact the treatment of the gain in 2019.

Question 17

The following assets in Jack's business were sold in 2018: $$\begin{array} { l l l } 
\text { Asset } & \text { HoldingPeriod } & \text { Gain/(Loss) Office } \
\text { equipment } & 6 \text { years } & \$ 1,100 \
\text { Automobile } & 8 \text { months } & ( \$ 800 ) \mathrm { ABC } \mathrm { stock } \
\text { (capital asset) } & 2 \text { years } & \$ 1,400
\end{array}$$ Office equipment, purchased for $8,000, had a zero adjusted basis. The automobile was purchased for $2,000 and sold for $1,200. The ABC stock was purchased for $1,800 and sold for $3,200. In 2018 (the year of sale), Jack should report what amount of net capital gain and net ordinary income?

Accepted Answer

The net capital gain is $1,400 from the sale of ABC stock, a capital asset held for more than one year. The net ordinary income is $300, which is the gain from the sale of office equipment ($1,100), treated as ordinary income because it's depreciated property with a zero adjusted basis. The loss from the automobile ($800) cannot offset ordinary income because it's a personal use asset.

Question 18

Emilio owns vacant land he is holding for investment. Two years ago he granted an option to purchase the land. The option grantee paid $25,000 for the option. This year the option expired unexercised. As a result, Emilio has:

Accepted Answer

The answer of Emilio owns vacant land he is holding...

Question 19

Martha has both long-term and short-term 2019 capital gains and losses. The result of netting these gains and losses is a net long-term capital loss. Martha has no qualified dividend income. Also, her 2019 taxable income puts her in the 24% tax bracket. Which of the following is correct?

Accepted Answer

Martha will use Parts I and II of Schedule D to report her short-term and long-term capital gains and losses, respectively, and Part III to summarize and carry the net amount over to her Form 1040. Since she has a net long-term capital loss, she won't benefit from the lower tax rates that apply to long-term capital gains. However, she can still deduct the capital loss against her ordinary income, up to the annual limit of $3,000 ($1,500 if married filing separately), with any excess carried forward to future years.

Question 20

In 2019, 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 2019, an individual taxpayer has $863,000...

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