Question 1

Shanstella bought a 4-unit apartment building in July 2005 for $360,000 and sold it for $480,000 in 2014.There was $96,541 of accumulated straight-line depreciation on the apartment building.Assuming that Shanstella is in the 33% tax bracket,how much of her gain is taxed at 25%?

Accepted Answer

The gain taxed at 25% is the amount of accumulated depreciation, which is $96,541. This is because the IRS requires that the portion of the gain attributable to depreciation (known as depreciation recapture) be taxed at a maximum rate of 25%.

Question 2

Which of the following statements is correct regarding the sale of ordinary assets?

Accepted Answer

The answer of Which of the following statements is correct...

Question 3

Patty and Rich,married filing jointly,have $385,000 in MAGI and $90,000 of net investment income (NII).They will pay a surtax of:

Accepted Answer

Patty and Rich are subject to the Net Investment Income Tax (NIIT), which is a 3.8% surtax on their NII. To calculate the NIIT, they must compare their MAGI to the threshold amount for their filing status, which is $250,000 for married filing jointly. Since their MAGI is $385,000, they are over the threshold by $135,000.

The NIIT is calculated as 3.8% of the lesser of their NII or the amount by which their MAGI exceeds the threshold. In this case, their NII of $90,000 is less than the $135,000 amount by which their MAGI exceeds the threshold. Therefore, the NIIT is 3.8% of $90,000, which equals $3,420.

Therefore, the correct answer is C, they will pay a surtax of $3,420.

Question 4

The top tax rates for an individual with long-term capital gains on the sale of stock and on the sales of collectibles,sold after December 31,2012 are:

Accepted Answer

The top tax rate for long-term capital gains on the sale of stock is 20%, while the top tax rate for sales of collectibles is 28%. Therefore, choice C, which includes both rates, is the correct answer. Choices A and B are incorrect because they do not include the 28% rate for collectibles. Choice D is incorrect because it includes a 25% rate for long-term capital gains, which is not currently in effect.

Question 5

Before the tax implications of asset sales can be determined,which of the following must be determined?

Accepted Answer

All of these factors must be determined before the tax implications of asset sales can be determined. The classification of assets as personal, trade or business, or investment assets is important in determining the applicable tax rate. The length of time the taxpayer owned the property affects the tax rate and whether the gain or loss is short-term or long-term. If the asset is subject to depreciation, the amount of depreciation claimed affects the calculation of the gain or loss on the sale of the asset. Therefore, all these factors are important in determining the tax implications of asset sales.

Question 6

Section 1231 property is:

Accepted Answer

Section 1231 property refers to property used in a trade or business that may or may not be subject to depreciation and is held for more than one year.

Question 7

Gilberto invested in a mid-size local company with gross assets of $16,000,000.Gilberto purchased 1,000 shares for $48,000 in 1999.In 2014,Gilberto sold the stock for $78,000.How is the gain treated for tax purposes?

Accepted Answer

The answer of Gilberto invested in a mid-size local company...

Question 8

Hiroko,a single taxpayer,has wage income of $80,000.In addition,she has $5,000 in long-term capital losses,$4,000 in long-term capital gains,and $4,000 in short-term capital gains.What is Hiroko's AGI for 2014?

Accepted Answer

AGI (Adjusted Gross Income) is calculated by subtracting any deductions such as contributions to a traditional IRA or student loan interest from your gross income. In this case, Hiroko's gross income is $80,000. She also has $5,000 in long-term capital losses, which offset $4,000 of her long-term capital gains and $4,000 of her short-term capital gains. This means she only needs to include $1,000 of her long-term capital gains in her AGI calculation. Therefore, her AGI is $80,000 - $5,000 + $1,000 = $76,000. However, since she is a single taxpayer, she is entitled to a standard deduction of $6,300 in 2014, which brings her AGI to $76,000 - $6,300 = $69,700. Finally, since her long-term capital losses exceed her gains by more than $3,000, she can carry the excess loss forward to future tax years.

Question 9

Jake purchased a $300,000 earthmover for his business.He sold the earthmover for $245,000 after taking $210,000 of depreciation.What is the nature and amount of the gain or loss on the sale?

Accepted Answer

The gain on the sale is calculated as the selling price ($245,000) minus the adjusted basis (original cost $300,000 minus depreciation $210,000 = $90,000 adjusted basis), which equals $155,000. Since the asset is depreciable property used in a business and the gain is due to depreciation recapture, it is classified as Section 1245 ordinary income.

Question 10

Which one of the following is a capital asset?

Accepted Answer

The answer of Which one of the following is a...

Question 11

Lourdes,a sole proprietor,collected $8,650 on November 21,2014 on some of her outstanding receivables.Her basis in these receivables was $0.What is the gain or loss Lourdes recognizes for 2014?

Accepted Answer

Since Lourdes collected the receivables in the normal course of her business and her basis in these receivables was $0, the collection does not result in a gain or loss.

Question 12

Juanita is a sole proprietor who has some outstanding receivables she wishes to sell.The receivables have a $16,000 FMV and a basis of $10,000.Juanita sells the receivables for $12,500.What gain or loss does Juanita recognize on the sale?

Accepted Answer

The gain recognized by Juanita is calculated as the difference between the selling price ($12,500) and the basis of the receivables ($10,000), which equals $2,500. Since the receivables are considered ordinary assets in the course of her business, the gain is classified as ordinary.

Question 13

A taxpayer purchased land in 2007 for $85,000 and sold it in 2014 for $75,000 cash.The buyer also assumed the mortgage of $5,000.What is the amount of gain/loss on the sale of the land?

Accepted Answer

The total amount realized from the sale is $75,000 cash plus the $5,000 mortgage assumed by the buyer, totaling $80,000. The original purchase price was $85,000. Therefore, the loss is $85,000 - $80,000 = $5,000.

Question 14

Marquez purchased some equipment for $58,750 on August 15,2013.He decided he did not need the equipment so he sold it on June 13,2014 for $56,500.The equipment was subject to depreciation of $6,964 for 2013 and 2014.What gain or loss will Marquez recognize on the sale of the equipment?

Accepted Answer

The equipment was sold for $56,500, which is $2,250 less than its original cost of $58,750. However, the equipment was also depreciated by $6,964 over the two years that Marquez owned it. This means that the equipment's adjusted basis is $51,786 ($58,750 - $6,964). Therefore, Marquez will recognize a gain of $4,714 on the sale of the equipment ($56,500 - $51,786). This gain is ordinary because the equipment was used in Marquez's business.

Question 15

Reuben,a single taxpayer,has wage income of $75,000.He also has a short-term capital loss of $5,000,a short-term capital gain of $2,000,and a long-term capital gain of $3,000.What is Reuben's AGI for 2014?

Accepted Answer

Reuben's AGI is calculated by adding his wage income to his net capital gains/losses. His net capital gain/loss is calculated as follows: $2,000 (short-term gain) + $3,000 (long-term gain) - $5,000 (short-term loss) = $0. Therefore, his AGI is $75,000 (wage income) + $0 (net capital gain/loss) = $75,000.

Question 16

What is the basis of artistic works that have been gifted to another by the creator?

Accepted Answer

The answer of What is the basis of artistic works...

Question 17

Which one of the following is Section 1231 property?

Accepted Answer

Section 1231 property refers to depreciable property used in a trade or business (such as machinery or buildings) that is held for more than a year. Therefore, the correct choice is D, a building used in a trade or business. Choices A and B are not depreciable property, and Choice C refers to current assets held for sale rather than long-term property used in business.

Question 18

Glenn sells a piece of equipment used in his business for $31,500.The equipment was purchased on July 1,2012,at a cost of $22,000.Glenn has taken $6,600 of depreciation on the equipment.What are the amount and classification of the gain on the sale by Glenn?

Accepted Answer

The gain on the sale is calculated as the selling price ($31,500) minus the adjusted basis (original cost $22,000 - depreciation $6,600), resulting in a gain of $16,100. Under Section 1245, the gain up to the amount of depreciation taken ($6,600) is treated as ordinary income, and the remaining gain ($9,500) is treated as a Section 1231 gain.

Question 19

A taxpayer has 6 separate capital gain transactions.Four of them are long-term and two are short term transactions.Two of the long term transactions have box 3 from Form 1099-B checked,one does not have box 3 from Form 1099-B checked,and there was no 1099-B received for one of the long term transactions.One short term transaction has box 3 from a 1099-B checked and the other transaction does not have box 3 from a 1099-B checked.How many Form 8949 must the taxpayer complete?

Accepted Answer

The taxpayer must complete separate Form 8949s for each category of transactions: long-term transactions with box 3 checked, long-term transactions without box 3 checked, and short term transactions with box 3 checked. Therefore, there will be three separate Form 8949s for the six transactions. The fact that one of the long-term transactions did not have a 1099-B received does not change the requirement to report it on a Form 8949.

Question 20

Patrice sells a parcel of land for $50,000 cash and the buyer assumes Patrice's liability of $7,000 on the land.Patrice's basis in the land is $40,000.What is the gain or loss she will recognize on the sale?

Accepted Answer

The formula for calculating gain or loss on the sale of property is:

Sale price - Adjusted basis - Selling expenses = Gain/Loss

In this case, the sale price is $50,000 cash plus the assumption of liability ($7,000) by the buyer, for a total of $57,000.

The adjusted basis is Patrice's basis in the land ($40,000) plus the assumed liability ($7,000), for a total of $47,000.

There are no selling expenses provided, so we can assume there are none.

Plugging these numbers into the formula, we get:

$57,000 - $47,000 = $10,000 gain

Therefore, the best choice is D - $17,000 gain. This is not the correct answer because it implies that Patrice's adjusted basis is $33,000 ($40,000 - $7,000), which is not the case. The gain is actually $10,000.

Quiz 7: Capital Gains and Other Sales of Property