Question 1

If Houston Printing Co.purchases a new printing press during the current year for $30,000,pays sales taxes of $2,000,and pays $1,000 for installation,the cost basis for the printing press is $33,000.

Accepted Answer

Costs of acquiring an asset and placing it in service must be added to the basis of the asset.

Question 2

Richard exchanges a building with a basis of $35,000,and subject to a liability of $25,000,for land with a FMV of $50,000 owned by Bill.Bill takes the building subject to the liability.What is the amount of Richard's realized gain?

Accepted Answer

D) Amount realized $75,000 (FMV land $50,000 + $25,000 debt assumed by buyer) - $35,000 basis = $40,000 gain.

Question 3

Losses are generally deductible if incurred in carrying on a trade or business or incurred in an activity engaged in for profit.

Accepted Answer

Losses are generally deductible if incurred in relation to carrying on a trade or business or in activity engaged in for profit, but are generally not allowed on personal-use assets.

Question 4

Michelle purchased her home for $150,000,and subsequently added a garage costing $25,000 and a new porch costing $5,000.Repairs to the home's plumbing cost $1,000.The adjusted basis in the home is

Accepted Answer

C) $150,000 + $25,000 + $5,000 = $180,000. Repairs are not added to the basis.

Question 5

Capital recoveries increase the adjusted basis of an asset.

Accepted Answer

Capital recoveries reduce the adjusted basis.

Question 6

Expenditures which do not add to the value or prolong the life of property may be expensed in the year in which they are incurred.

Accepted Answer

The criteria of adding value or prolonging life is what distinguishes a capital expenditure from a currently deductible expenditure.

Question 7

On January 1 of this year,Brad purchased 100 shares of stock at $4,000.By December 31 of this year,the stock had declined in value to $2,200,but Brad still held the shares.Brad has realized a $1,800 loss for tax purposes this year.

Accepted Answer

Mere changes in the value of property are not normally recognized as a disposition for purposes of determining a realized gain or loss.

Question 8

Gains and losses are recognized when property is disposed of by gift or bequest.

Accepted Answer

Gains and losses are generally not realized when property is disposed by gift or bequest.

Question 9

Jack exchanged land with an adjusted basis of $65,000 subject to a liability of $22,000 for $50,000 (FMV) of stock owned by Hayden.Hayden takes the land subject to the liability.Jack incurs $500 of selling expenses.What is the amount of Jack's realized gain on the exchange?

Accepted Answer

C) Amount realized $71,500 (FMV stock $50,000 + $22,000 debt assumed by buyer - $500 selling expenses) - $65,000 basis = $6,500 gain.

Question 10

Will exchanges a building with a basis of $35,000,and subject to a liability of $30,000,for land with a FMV of $50,000 owned by Jane.Jane takes the land subject to the liability.The amount realized by Will is

Accepted Answer

D) FMV of land received $50,000 + liability transferred to other party $30,000 = $80,000.

Question 11

Courtney sells a cottage at the lake that the family had used for their summer vacations.The purchaser paid Courtney $100,000 and assumed the mortgage which had a principal balance of $50,000.Courtney had purchased the cottage five years ago for $170,000.Courtney will recognize

Accepted Answer

B) A loss of $20,000 is realized, but the cottage is a personal-use asset, and losses on personal-use assets cannot be recognized.

Question 12

Antonio owns land held for investment with a basis of $28,000.The city of Lafayette exercises the right of eminent domain and Antonio receives a payment of $48,000.What is Antonio's realized gain?

Accepted Answer

B) $48,000 amount realized - $28,000 adjusted basis = $20,000 realized gain.

Question 13

Five different capital gain tax rates could apply to long-term capital assets sold by noncorporate taxpayers.

Accepted Answer

Depending on the regular taxable income of the taxpayer and the types of capital assets sold, capital gain rates could be 0%, 15%, 20%, 25% or 28%.

Question 14

Which one of the following does not affect the adjusted basis of a house held as rental property?

Accepted Answer

C) Capital expenditures add to the value or prolong the life of the property. Painting is considered a repair that is expensed in the period incurred.

Question 15

Jordan paid $30,000 for equipment two years ago and has claimed total depreciation deductions of $15,600 for the two years.The cost of repairs during the same time period was $2,000 while a major overhaul which extended the life of the equipment cost $7,000.What is Jordan's adjusted basis in the equipment at the end of the two-year period?

Accepted Answer

C)
 11ea7e84_1f10_d155_9a0a_1bdd01afbd20_TB1260_00 The repairs are expensed in the period incurred.

Question 16

A taxpayer sells an asset with a basis of $25,000 to an unrelated party for $28,000.The taxpayer has a realized gain of $3,000.

Accepted Answer

To determine a realized gain or loss, the amount realized from the sale or other disposition of property is compared with the adjusted basis of the property.

Question 17

Rick sells stock of Ty Corporation,which has an adjusted basis of $20,000,for $22,000.He pays a sales commission of $500.In computing his gain or loss,the amount realized by Rick is $1,500.

Accepted Answer

The amount realized is the value received less selling expenses. $22,000 - $500 commissions = $21,500.

Question 18

A taxpayer purchased an asset for $50,000 several years ago.He is now planning to sell it.Under the recovery of basis doctrine the taxpayer will not recognize any gain or pay any related taxes unless he sells the asset for more than $50,000.

Accepted Answer

This is an example of the recovery of basis doctrine.

Question 19

All recognized gains and losses must eventually be classified either as capital or ordinary.

Accepted Answer

Different tax rates can apply to ordinary and capital gains, and capital losses have deduction limitations so classification between ordinary and capital is important.

Question 20

All realized gains and losses are recognized for tax purposes.

Accepted Answer

Special provisions in the tax law allow for the deferral, exclusion, or disallowance of certain gains/losses.

Quiz 5: Property Transactions: Capital Gains and Losses