Question 1

A deferred like-kind exchange does not help accomplish which of the following objectives?

Accepted Answer

A deferred like-kind exchange helps facilitate finding replacement property, help acquire the replacement property, and reduce the possibility that the seller must receive cash (boot) that will taint the transaction. However, it does not certify the taxpayer's Form 8824 - this is the taxpayer's responsibility to complete and file.

Question 2

Sadie sold 10 shares of stock to her brother, George, for $590 16 months ago. Sadie had purchased the stock for $780 two years earlier. If George sells the stock for $970, what are the amount and character of his recognized gain or loss in the current year?

Accepted Answer

George's basis in the stock is the amount he paid for it, which is $590. When he sells it for $970, he has a realized gain of $380 ($970 - $590). Since George held the stock for more than one year (16 months is greater than 12 months), this is a long-term capital gain.

Question 3

Jessie sold a piece of land held for investment for $250,000. Jessie bought the land two years ago for $195,000. What is the amount and character of Jessie's gain?

Accepted Answer

The answer of Jessie sold a piece of land held...

Question 4

How long after the initial exchange does a taxpayer have to identify replacement property in a like-kind exchange?

Accepted Answer

According to the rules of a like-kind exchange, the taxpayer must identify the replacement property within 45 days after the initial exchange. Therefore, choice A is the best choice. Choices B, C, D, and E are incorrect because they provide alternative timelines that do not match the actual rule.

Question 5

Peroni Corporation sold a parcel of land valued at $300,000. Its basis in the land was $250,000. For the land, Peroni received $150,000 in cash in the current year and a note providing Peroni with $150,000 in the subsequent year. What is Peroni's recognized gain in the current and subsequent year, respectively?

Accepted Answer

Peroni's total gain is $50,000 ($300,000 - $250,000). Under the installment sale method, the gain is recognized proportionally as payments are received. In the current year, Peroni receives $150,000, which is 50% of the total sale price. Therefore, 50% of the total gain ($50,000) is recognized in the current year, which is $25,000. The remaining $25,000 is recognized in the subsequent year when the note is paid.

Question 6

Manassas purchased a computer several years ago for $2,600. On November 10^th of the current year, the computer was worth $ 880. If $1,080 of depreciation deductions had been taken, what is Manassas's tax-adjusted basis for the computer?

Accepted Answer

The answer of Manassas purchased a computer several years ago...

Question 7

Arlington LLC exchanged land used in its business for some new land. Arlington originally purchased the land it exchanged for $34,500. The new land had a fair market value of $38,250. Arlington also received $8,500 of office equipment in the transaction. What is Arlington'srecognized gain or loss on the exchange?

Accepted Answer

The answer of Arlington LLC exchanged land used in its...

Question 8

Andrea sold a piece of machinery she used in her business for eleven months. The amount realized was $50,170 and the adjusted basis was $55,850. What is Andrea's gain or loss realized, and what is the character of the gain or loss?

Accepted Answer

The answer of Andrea sold a piece of machinery she...

Question 9

The general rule regarding the exchanged basis in the new property received in a like-kind exchange is:

Accepted Answer

The basis of the new property received in a like-kind exchange is equal to the adjusted basis of the old property. This means that the basis of the old property is carried over to the new property.

Question 10

Explain whether the saleat a loss of a machine used in a trade or business generates an ordinary or capital loss?

Accepted Answer

The answer of Explain whether the saleat a loss of...

Question 11

Which of the following is true regarding disallowed losses between related taxpayers?

Accepted Answer

The tax laws essentially treat related parties as the same taxpayer, which means that disallowed losses between related taxpayers are not recognized for tax purposes. This prevents related parties from artificially shifting losses between them to gain tax advantages. The holding period of the seller or buyer and the basis of the assets may be affected, but the loss itself is disallowed.

Question 12

Sadie sold 10 shares of stock to her brother, George, for $500 16 months ago. Sadie had purchased the stock for $600 two years earlier. If George sells the stock for $700, what are the amount and character of his recognized gain or loss in the current year?

Accepted Answer

Sadie held the stock for more than one year before selling it to George, so her $100 loss is a long-term capital loss. When George sells the stock for $700, he has a $200 long-term capital gain calculated as follows: Selling price ($700) - George's basis ($500) = Gain ($200).

Question 13

Which of the following may qualify as an installment sale?

Accepted Answer

Only the sale of an asset used in a business at a gain may qualify as an installment sale. An installment sale occurs when payments are received over two or more tax years, and the gain is recognized in the year the payments are received.

Question 14

Each of the following is true except for:

Accepted Answer

Losses realized in involuntary conversions are not deferred; they are typically recognized immediately.

Question 15

Which of the following is not true regarding installment sales?

Accepted Answer

Depreciation recapture is not deferred in an installment sale; it must be reported as income in the year of sale.

Question 16

Andrea sold a piece of machinery she used in her business for nine months. The amount realized was $50,000 and the adjusted basis was $55,000. What is Andrea's gain or loss realized, and what is the character of the gain or loss?

Accepted Answer

The answer of Andrea sold a piece of machinery she...

Question 17

Which of the following is not an involuntary conversion?

Accepted Answer

A foreclosure is a voluntary act by the property owner in default of their loan payments. The other choices involve external forces that result in the involuntary loss of the property.

Question 18

Manassas purchased a computer several years ago for $2,200. On November 10 ^th of the current year, the computer was worth $800. If $1,000 of depreciation deductions had been taken, what is Manassas's tax-adjusted basis for the computer?

Accepted Answer

The answer of Manassas purchased a computer several years ago...

Question 19

Bull Run sold a computer for $1,200 on November 10 ^th of the current year. The computer was purchased for $2,800. Bull Run had taken $1,000 of depreciation deductions. What is Bull Run's gain or loss realized on the computer?

Accepted Answer

The answer of Bull Run sold a computer for $1,200...

Question 20

Arlington LLC exchanged land used in its business for some new land. Arlington originally purchased the land it exchanged for $28,000. The new land had a fair market value of $35,000. Arlington also received $2,000 of office equipment in the transaction. What is Arlington'srecognized gain or loss on the exchange?

Accepted Answer

Arlington's recognized gain is $2,000, which is the amount of the boot (office equipment) received in the exchange. The exchange of like-kind property (land for land) is generally not recognized, but the receipt of boot triggers recognition of gain up to the amount of the boot received.

Quiz 11: Property Dispositions