Question 1

Georgia sells stock she purchased for $20,000 to her brother Billy for $12,000. Two years later, Billy sells the stock to Allie, an unrelated individual, for $22,000. What is Billy's recognized gain or loss?

Accepted Answer

Billy's recognized gain is calculated based on the difference between his selling price ($22,000) and his purchase price ($12,000), which equals a $10,000 gain. However, because the question specifically asks for the recognized gain or loss, and the correct calculation based on the given numbers results in a $10,000 gain, it appears there was a misunderstanding in the initial response. The correct answer should reflect the gain based on the transaction details provided, which is a $10,000 gain, indicating a discrepancy in the initial response provided.

Question 2

Why did Congress enact the at-risk rules?

Accepted Answer

The answer of Why did Congress enact the at-risk rules?...

Question 3

Sylvia owns 1,000 shares of Sidney Sails, Inc., for which she paid $18,000 several years ago. On March 15, she purchases 400 additional shares for $5,000. Sylvia sells the original 1,000 shares for $13,500 on April 1. These are her only stock transactions during the year. Sylvia's capital loss deduction for the current year and her basis in the new shares are: Capital loss Basis

Accepted Answer

To calculate the capital loss deduction, first we need to determine Sylvia's realized gain or loss on the sale of the original 1,000 shares:

- Sale price = $13,500
- Cost basis = $18,000
- Capital loss = $18,000 - $13,500 = $4,500

Since the total loss exceeds the annual maximum capital loss deduction of $3,000, Sylvia can deduct $3,000 from her current year's income and carry over the remaining $1,500 to future years.

Next, we need to calculate Sylvia's adjusted basis in the 400 new shares:

- Purchase price = $5,000
- Number of shares = 400
- Price per share = $5,000 / 400 = $12.50
- Adjusted basis per share = $12.50

Therefore, Sylvia's adjusted basis in the 400 new shares is $12.50/share x 400 shares = $5,000.

The correct answer is B: $2,700 capital loss deduction for the current year and $6,800 basis in the new shares.

Question 4

Willie sells the following assets and realizes the following gains losses) during the current year:  As a result of these sales, Willie's adjusted gross income will:

Accepted Answer

The answer of Willie sells the following assets and realizes...

Question 5

During the year Wilbur has the following capital gains and losses:  What is the effect of the capital gains and losses on Wilbur's taxable income?

Accepted Answer

The answer of During the year Wilbur has the following...

Question 6

Why do the wash sale rules apply to the sale of stock at a loss but not to the sale of stock at a gain?

Accepted Answer

The answer of Why do the wash sale rules apply...

Question 7

During the year, Daniel sells both of his personal vehicles. On January 10, he realizes a $9,000 loss on the sale of the first car. On April 5, he realizes a $1,000 gain on the sale of the second car. Assume Daniel's salary for the year is $50,000, and he has no other income. What is Daniel's Adjusted Gross Income?

Accepted Answer

The answer of During the year, Daniel sells both of...

Question 8

Hamlet, a calendar year taxpayer, owns 1,000 shares of Vanity Corporation common stock, which he purchased two years ago for $4,000. Hamlet sells all of his shares on December 29, 2013, for $2,500. On January 23, 2014, he purchases 600 shares of Vanity Corporation common stock. What is the amount of Hamlet's recognized loss in 2013?

Accepted Answer

The loss is recognized in the year of sale, which is 2013. The amount of the loss is the difference between the sale price and the cost basis, which is $2,500 - $4,000 = -$1,500. However, losses on the sale of stock are not deductible for individual taxpayers, so the recognized loss is $0.

Question 9

During the year, Shipra's apartment is burglarized and her TV and stereo are taken. Her basis in the TV is $1,200 and it has a fair market value of $700. Her basis in the stereo is $400 and it has a fair market value of $600. What is Shipra's theft loss deduction before considering the annual limitation based upon AGI)?

Accepted Answer

Shipra's theft loss deduction would be the lesser of the adjusted basis ($1,600) or the decline in fair market value ($300 for the TV and $200 for the stereo), which is a total of $500. Therefore, her theft loss deduction is $500.

Question 10

Samantha sells the following assets and realizes the following gains losses) during the current year:  As a result of these sales, Samantha's adjusted gross income will:

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The answer of Samantha sells the following assets and realizes...

Question 11

Lisa sells some stock she purchased several years ago for $10,000 to her brother Bart for $8,000. One year later Bart sells the stock for $12,000. The tax consequences to Lisa and Bart are: Lisa Bart

Accepted Answer

Since Lisa sells the stock to Bart at a loss, she cannot claim a loss on her tax return since the transaction is between related parties. Therefore, there is no tax consequence for Lisa. For Bart, he sells the stock for a gain of $4,000 ($12,000 - $8,000), but since he bought the stock from a related party (Lisa), any gain he realizes is limited to the lesser of his actual gain ($4,000) or Lisa's adjusted basis in the stock ($10,000). Since Lisa's adjusted basis was $10,000 and Bart sold the stock for $12,000, Bart's gain is limited to $2,000. There is no loss or gain for Lisa, and Bart has a taxable gain of $2,000.

Question 12

The Ottomans own a winter cabin in Durango, Colorado. They purchased the cabin in 1984 for $65,000. During the current year, a blizzard partially destroys the cabin. The fair market value of the cabin after the blizzard is $70,000. The insurance company estimates that the cost of repairing the cabin will be $40,000. The insurance company will reimburse the Ottomans for 70% of the repair cost. What can they deduct as a casualty loss if their adjusted gross income for the year is $80,000?

Accepted Answer

The casualty loss deduction is calculated as the lesser of the decrease in fair market value or the adjusted basis, minus insurance reimbursement. The decrease in value is $35,000 ($105,000 pre-blizzard value - $70,000 post-blizzard value). The insurance covers 70% of $40,000, which is $28,000. The deductible loss is $35,000 - $28,000 = $7,000. After applying the $100 rule and 10% of AGI ($8,000), the deductible loss is $7,000 - $100 - $8,000 = $3,900.

Question 13

Gloria owns 750 shares of the Greene Company that she acquired in 2008 for $9,000. On June 12 of the current year, she sells 500 shares of Greene for $4,000. Two weeks later on June 26, Gloria purchases 200 shares of Greene for $2,200. What are the effects of the June 12 sale? Explain.

Accepted Answer

The answer of Gloria owns 750 shares of the Greene...

Question 14

Olivia sells some stock she purchased several years ago for $9,000 to her brother Jack for $12,000. One year later Jack sells the stock for $15,000. The tax consequences to Olivia and Jack are: Olivia Jack

Accepted Answer

The answer of Olivia sells some stock she purchased several...

Question 15

If a corporation incurs a net operating loss, what would cause it to elect to carry the loss forward and forsake the carryback? Explain.

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Question 16

Jerome owns a farm, which has three separate houses. He rents out two of the houses and lives in the other house. During the current year, a tornado goes through his property causing damage to the houses. Rental House A had a fair market value of $40,000 and an adjusted basis of $20,000, but it is not damaged by the tornado. A local real estate agent told Jerome that because of the tornado, property values in the area have declined 10%. Rental House B, which has an adjusted basis of $25,000, is worth $60,000 before the tornado and $20,000 after the tornado. Jerome's insurance company pays him $20,000 for the damage to Rental House B. Jerome's residence which has an adjusted basis of $80,000) was worth $70,000 before it is totally destroyed by the tornado. Jerome's insurance company reimburses him $60,000 for the loss of his residence. Ignore the limitation based on Adjusted Gross Income. I. Jerome deducts a loss of $5,000 on Rental House A. II. Jerome deducts a loss of $35,000 on Rental House B. III. Jerome's loss on his residence is $9,900. IV. Jerome cannot deduct a loss on Rental House A.

Accepted Answer

I. Jerome cannot deduct a loss on Rental House A because it was not damaged by the tornado.

II. Jerome deducts a loss of $35,000 on Rental House B. The decrease in value due to the tornado ($60,000 - $20,000 = $40,000) is greater than the insurance reimbursement ($20,000), so the difference ($40,000) is deductible.

III. Jerome's loss on his residence is $9,900. The decrease in value due to the tornado ($70,000 - $60,000 = $10,000) is less than the insurance reimbursement ($60,000), so there is no deductible loss. However, the loss is calculated as follows: Adjusted basis ($80,000) - insurance reimbursement ($60,000) - decrease in value ($10,000) = loss ($9,900).

IV. This statement is incorrect because Jerome can deduct a loss on Rental House B, as explained in statement II.

Question 17

During the current year, Cathy realizes • a $3,000 loss on the sale of her personal use automobile held 4 years.
• a $4,000 loss on the sale of Itoham Corporation stock held 3 years for investment.
• a $2,000 gain on the sale of Sterling, Inc., bonds held 7 months for an investment. Determine the tax consequences of these events.

Accepted Answer

The answer of During the current year, Cathy realizes •...

Quiz 7: Losses-Deductions and Limitations