Question 1

Section 1202 allows for an exclusion of up to 50% of the eligible gain on the sale or exchange of qualified small business stock if held for more than one year.

Accepted Answer

Section 1202 allows for an exclusion of up to 100% of the eligible gain on the sale or exchange of qualified small business stock if held for more than five years, depending on when the stock was acquired.

Question 2

Currently,the maximum long term capital gain rate applied to a taxpayer in the 15% regular tax bracket is 0%.

Accepted Answer

This statement is true. Under current tax laws (as of 2021), taxpayers in the 15% regular tax bracket or lower are eligible for a 0% long-term capital gains tax rate for most types of investments held for longer than one year.

Question 3

The holding period for property acquired by inheritance begins on the date of the decedent's death.

Accepted Answer

False

Question 4

If the property's fair market value at the date of the gift is lower than the adjusted basis,then the property's basis for determining loss is its fair market value on that date.

Accepted Answer

When the fair market value of the property at the date of the gift is lower than its adjusted basis, the basis for determining loss is its fair market value on that date. This is because the adjusted basis is no longer relevant for determining the loss since the property has been given as a gift.

Question 5

When the buyer assumes the seller's liability,the seller includes this amount in computing the amount realized from the sale.

Accepted Answer

When the buyer assumes the seller's liability, the seller includes the amount of liability in the amount realized from the sale. This is because the seller is effectively receiving a higher price for the property as a result of the buyer assuming the liability.

Question 6

The holding period of an asset starts on the date acquired and ends on the day the asset is sold.

Accepted Answer

The answer of The holding period of an asset starts...

Question 7

The forms used to report a gain or loss on the sale of an asset depend on the classification of the asset being sold rather than on how the asset was used prior to sale.

Accepted Answer

The forms used to report a gain or loss on the sale of an asset depend on how the asset was used prior to sale, as this determines its classification for tax purposes.

Question 8

The basis of inherited property to the beneficiary is the FMV at the date of death or alternate valuation date.

Accepted Answer

The Fair Market Value (FMV) of the inherited property at the date of death or alternate valuation date is used as the basis for the beneficiary. This means that the beneficiary can sell the property for the FMV at the time of the owner's death, rather than the original purchase price. This is known as a "step-up" in basis for inherited property.

Question 9

Inventory on hand at the end of the year is Section 1231 property.

Accepted Answer

Inventory on hand at the end of the year is not considered Section 1231 property. Section 1231 property generally includes depreciable property and real property (like buildings and equipment) used in a trade or business and held for more than one year. Inventory is considered ordinary income property, not Section 1231 property, because it is held primarily for sale to customers in the ordinary course of business.

Question 10

Unused capital losses in any one year carry forward indefinitely to offset any future short-term or long-term gains.

Accepted Answer

This statement is true. Unused capital losses from any year can be carried forward indefinitely to offset any future short-term or long-term gains. However, there may be certain limitations on the amount of loss that can be deducted in a given year.

Question 11

If a taxpayer has a net Section 1231 loss for the year,all Section 1231 gains and losses are treated as being capital gains and losses.

Accepted Answer

If a taxpayer has a net Section 1231 loss for the year, the Section 1231 losses are treated as ordinary losses, while the Section 1231 gains are treated as capital gains. This is governed by the tax code section 1231.

Question 12

If the taxpayer's aggregate Section 1231 gains for the year exceed aggregate Section 1231 losses for the year,all such gains and losses are considered to be ordinary.

Accepted Answer

When a taxpayer's aggregate Section 1231 gains for the year exceed their aggregate Section 1231 losses, such gains and losses are treated as long-term capital gains and losses, not ordinary.

Question 13

The donee's basis in depreciated property (when the FMV at the time of the gift is less than the donor's basis)is FMV at the time of the gift.

Accepted Answer

The donee's basis in depreciated property, when the fair market value (FMV) at the time of the gift is less than the donor's adjusted basis, is the donor's adjusted basis for determining loss. For determining gain, the donee's basis is the same as the donor's adjusted basis. The FMV is used only if it is lower than the donor's adjusted basis and the property is subsequently sold at a loss.

Question 14

The purpose of Code Sections 1245 and 1250 recapture provisions is to restrict the possibility of converting ordinary income into capital gains through use of depreciation deductions.

Accepted Answer

Code Sections 1245 and 1250 recapture provisions are designed to prevent taxpayers from converting ordinary income into capital gains by taxing the gain attributable to depreciation deductions as ordinary income. Therefore, the statement is true.

Question 15

Real property held for investment is a capital asset.

Accepted Answer

Real property held for investment is considered a capital asset under the tax code.

Question 16

If Section 1231 losses exceed Section 1231 gains,the excess is treated as an ordinary loss.

Accepted Answer

Section 1231 losses are netted against Section 1231 gains, and if there is an excess of losses, it is treated as an ordinary loss.

Question 17

A computer used exclusively in a sole proprietor's business is a capital asset.

Accepted Answer

In the context of a sole proprietor's business, a computer used exclusively for the business is considered a business asset, not a capital asset. Capital assets are typically personal assets like investments, while business assets are used in the operation of the business.

Question 18

Short-term capital losses first reduce 28% gains,then 25% gains,and if any loss remains,the 20%,15% or 0% group.

Accepted Answer

This statement is true. When you have short-term capital losses, you must first use them to offset any short-term capital gains that you have. If you still have losses left over after offsetting your short-term gains, you can use them to offset long-term capital gains. If you still have losses remaining after that, you can use them to offset up to $3,000 of ordinary income. If you still have losses left over after that, you can carry them forward to future tax years.

Question 19

Property owned by a taxpayer and used either for personal purposes,investment,or in a trade or business is a capital asset.

Accepted Answer

The answer of Property owned by a taxpayer and used...

Question 20

To qualify as Section 1231 property,the property must be used in a taxpayer's trade or business and must be held for less than one year.

Accepted Answer

To qualify as Section 1231 property, the property must be used in a taxpayer's trade or business, but it must be held for MORE than one year, not less than one year.

Quiz 7: Capital Gains and Other Sales of Property Schedule D and Form 4797