Question 1

Gabriella,a single taxpayer,has wage income of $160,000.In addition,she has $7,000 in long-term capital losses,$1,000 in long-term capital gains,$3,000 in short-term capital gains,and $1,000 in short-term losses.What is Gabriella's AGI for 2014?

Accepted Answer

Gabriella's long-term capital losses ($7,000) can offset her long-term capital gains ($1,000), resulting in a net loss of $6,000. Her short-term capital gains ($3,000) can also be offset by her short-term losses ($1,000), resulting in a net gain of $2,000. The net capital loss is then $4,000 ($6,000 - $2,000). Gabriella's AGI is calculated by subtracting her total deductions from her total income, which gives us $160,000 - $4,000 = $156,000. Therefore, the correct answer is choice letter B.

Question 2

Yolanda,a single taxpayer,has W-2 income of $87,500.She also has a short-term capital loss of $7,000,a short-term capital gain of $1,000,and a long-term capital gain of $2,000.What is Yolanda's AGI for 2014?

Accepted Answer

Yolanda's AGI is calculated by subtracting her eligible deductions from her total income. Her total income is $87,500 + $2,000 (long-term capital gain) + $1,000 (short-term capital gain) - $7,000 (short-term capital loss) = $83,500. Therefore, the correct answer is choice B.

Question 3

Which of the following is a Section 1221 asset?

Accepted Answer

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

Question 4

Jack purchased 100 shares of Ford stock on April 22,2013.If he sells the stock on April 21,2014,what is the character of the sale?

Accepted Answer

The stock was held for less than one year, so it is considered a short-term transaction, which does not qualify for preferential tax treatment.

Question 5

In 2011,Joe purchased land for $73,500 for use in his business.He sold it in 2014 for $100,000.What is the gain on the sale before any netting?

Accepted Answer

The gain on the sale is calculated by subtracting the cost of the land from the sale price: $100,000 - $73,500 = $26,500. Since the land was held for use in a business, it is classified as section 1231 property. Therefore, the gain is also classified as section 1231 gain, which is a type of capital gain.

Question 6

Sammy sells a piece of specialized equipment (with a high resale value)used in his business for $41,650 on September 10,2014.The equipment was purchased on May 20,2011 for $32,000.Sammy has taken $9,200 of depreciation on the equipment.What are the amount and classification of the gain on the sale by Sammy?

Accepted Answer

The gain on the sale of the equipment can be calculated as follows:

Sale price: $41,650 
Less: Adjusted basis ($32,000 + $9,200 depreciation): $41,200

Gain on sale: $450

Since the equipment is considered Section 1245 property (i.e. personal property used in a trade or business), the gain is classified as follows:

$9,200 ordinary income under Section 1245 (recapture of depreciation)

$450 excess of sales price over depreciated basis

$9,650 Section 1231 gain

Therefore, the correct option is D.

Question 7

Which of the following statements is correct regarding the sale of ordinary assets as discussed in this chapter?

Accepted Answer

According to the chapter, the sale of an asset held less than a year outside the normal course of a trade or business is considered a sale of an ordinary asset. The other options are incorrect as they do not apply to all situations.

Question 8

In 2009,Terri purchased 260 shares of Flowers R Us stock at a cost of $9,600 as an investment.In 2014,when the fair market value was $11,400,Terri gave the stock to her daughter,Michele.Assuming no gift tax was paid,if Michele sells the stock for $13,800,she will recognize:

Accepted Answer

Michele's basis in the stock is the same as Terri's original cost basis of $9,600 because no gift tax was paid. When Michele sells the stock for $13,800, the gain is calculated as $13,800 (sale price) - $9,600 (basis) = $4,200 gain.

Question 9

In 2014,Linda gave her son,Jonathan 425 shares of School Products,Inc.common stock.Linda paid $8,350 for the stock in 2008.At the date of the gift,the FMV of the stock was $5,800.Assuming that there is no gift tax paid,if Jonathan sells the stock for $5,000,he will recognize:

Accepted Answer

Jonathan's basis for determining loss is the lower of the donor's adjusted basis ($8,350) or the FMV at the time of the gift ($5,800). Since he sells it for $5,000, the loss is $5,800 - $5,000 = $800.

Question 10

Tamiko buys a painting from a collector for resale in her gallery for $3,500.She sold it 15 months later for $5,500.What are the nature and amount of the gain on the sale of the painting?

Accepted Answer

The answer of Tamiko buys a painting from a collector...

Question 11

In 2014,Carmen had a net capital loss of $10,000 and taxable income of $100,000.What is Carmen's loss carryforward to 2015?

Accepted Answer

According to the tax laws, a taxpayer can offset capital losses against capital gains and up to $3,000 of ordinary income each year. As Carmen had a net capital loss of $10,000 and taxable income of $100,000, she can offset $3,000 of her ordinary income, reducing it to $97,000. This also leaves her with a net capital loss of $7,000 ($10,000 - $3,000), which she can carry forward to the next tax year. Therefore, her loss carryforward to 2015 is $7,000.

Question 12

Leslie buys a sculpture from a collector for resale in her gallery.She purchased the sculpture for $5,000 and sold it 24 months later for $9,000.What are the nature and the amount of the gain on the sale?

Accepted Answer

The gain on the sale is calculated by subtracting the purchase price from the selling price: $9,000 - $5,000 = $4,000. Since Leslie purchased the sculpture for resale in her gallery, the gain would be considered ordinary income. There is no information provided to suggest that this is a Section 1231 or Section 1245 gain.

Question 13

Keiko sells a piece of equipment used in her business for $14,853 on August 10,2014.The equipment was purchased on January 4,2013 at a cost of $12,849.Keiko has taken $3,855 of depreciation on the equipment.What is the amount and classification of the gain on the sale by Keiko?

Accepted Answer

The total gain is $2,004 ($14,853 sale price - $12,849 purchase price + $3,855 depreciation). $3,855 of the gain is recaptured as ordinary income under Section 1245, and the remaining $2,004 is a Section 1231 gain.

Question 14

Greg sold some equipment for $72,510 on June 13,2014.Greg had originally purchased the equipment for $86,750 on November 21,2013.The equipment was subject to depreciation of $17,350.What gain or loss will Greg recognize on the sale?

Accepted Answer

The gain or loss is calculated as the sale price minus the adjusted basis (original cost minus depreciation). The adjusted basis is $86,750 - $17,350 = $69,400. The gain is $72,510 - $69,400 = $3,110, which is an ordinary gain since the equipment was held for less than a year.

Question 15

Aneta sold an apartment building for $713,470 in 2014.She purchased the building in 2008 for $600,000 and has taken $151,806 in depreciation on the building.Assuming Aneta is in the 33% tax bracket,how is her gain taxed?

Accepted Answer

To determine Aneta's gain, we need to calculate the adjusted basis of the building first. Adjusted basis = purchase price - accumulated depreciation.

Adjusted basis = $600,000 - $151,806 = $448,194

Aneta's gain = selling price - adjusted basis = $713,470 - $448,194 = $265,276

Since Aneta is in the 33% tax bracket, her gain will be taxed at 15% for long-term capital gains and 25% for depreciation recapture.

Therefore, $113,470 (the portion of the gain that is not subject to recapture) will be taxed at 15%. The remaining $151,806 (the depreciation recapture) will be taxed at 25%.

The answer is D: $151,806 at 25% and $113,470 at 15%.

Question 16

Demetrius had a $4,000 short-term loss and a $3,000 long-term gain from a collectible,a $2,000 gain from Section 1250 unrecaptured property.What is the netting effect of these gains and losses on his 1040?

Accepted Answer

According to IRS regulations, collectible gains and losses are first offset against each other regardless of whether they are short-term or long-term. In this case, the $4,000 short-term loss is first offset against the $3,000 collectible gain, leaving a remaining short-term loss of $1,000. The remaining short-term loss is then offset against the $2,000 gain from Section 1250 unrecaptured property, leaving a net short-term loss of $1,000. The $1,000 net loss is then taxed at the taxpayer's ordinary income tax rate.

Question 17

Samson purchased some equipment for $86,749 on March 15,2013.He decided he did not need the equipment and sold it on March 10,2014 for $82,000.The equipment was subject to depreciation of $16,851 for 2013 and 2014.What gain or loss will Samson recognize on the sale of the equipment?

Accepted Answer

The answer of Samson purchased some equipment for $86,749 on...

Question 18

Otis bought a 2-unit apartment building in July 2007 for $330,000 and sold it for $400,000 on December 20,2014.At the time of sale there was $83,493 of accumulated straight-line depreciation on the apartment building.Assuming Otis is in the 33% tax bracket,how much of the gain will be taxed at 25%?

Accepted Answer

The gain taxed at 25% is the amount of accumulated depreciation, which is $83,493.

Question 19

A capital asset includes all the following except:

Accepted Answer

Real estate used in the taxpayer's trade or business is not considered a capital asset; it is classified as a business asset.

Question 20

Heidi invested in a mid-sized local company with gross assets of $17,000,000.Heidi purchased 2,000 shares for $44,000 in 1998.In 2014,Heidi sold the stock for $84,000.How is the gain treated for tax purposes?

Accepted Answer

The answer of Heidi invested in a mid-sized local company...

Quiz 7: Capital Gains and Other Sales of Property