Question 1

Distinguish between the Corn Products doctrine and the ruling in the Arkansas Best Corporation case.

Accepted Answer

The answer of Distinguish between the Corn Products doctrine and...

Question 2

All of the following are capital assets with the exception of

Accepted Answer

C) Under Section 1221, depreciable property used in a trade or business is not a capital asset.

Question 3

Joy purchased 200 shares of HiLo Mutual Fund on July 15,2013,for $10,500,and has been reinvesting dividends.On December 15,2017,she sells 100 shares.
  
What is the basis for the shares sold assuming (1) FIFO and (2) average cost method?

Accepted Answer

The answer of Joy purchased 200 shares of HiLo Mutual...

Question 4

Bad debt losses from nonbusiness debts are deductible as short-term or long-term capital losses depending on how long the debt was outstanding.

Accepted Answer

Bad debt losses from nonbusiness debts are deductible only as short-term capital losses regardless of when the debt occurred.

Question 5

Armanti received a football championship ring in college.During difficult economic times,Armanti sold the ring at a pawn shop.What are the tax issues of the sale to Armanti?

Accepted Answer

The answer of Armanti received a football championship ring in...

Question 6

Net long-term capital gains receive preferential tax treatment if they exceed net short-term capital losses.

Accepted Answer

Net long-term capital gains will be taxed at lower tax rates.

Question 7

In 2012,Regina purchased a home in Las Vegas which cost $280,000.Due to increase in the market value of the home,she refinanced her mortgage and her debt on the home totaled $300,000 at the end of 2014.Regina accepted a new job in Dallas in April 2015.Unable to sell her home,she rented it in November 2015,at which time its fair market value was $240,000.In June 2017,she sold the home for $230,000.What tax issues should Regina consider?

Accepted Answer

The answer of In 2012,Regina purchased a home in Las...

Question 8

Normally,a security dealer reports ordinary income on the sale of securities unless it is specifically identified as a security being held for investment.

Accepted Answer

Unless a securities dealer clearly identifies that a property is held for investment, a security dealer will recognize ordinary gain on the sale of securities.

Question 9

Gina owns 100 shares of XYZ common stock with a $12,000 basis and a $25,000 FMV.She receives 100 stock rights with a total FMV of $15,000.Answer the following:
a.What is the basis of the 100 shares of stock?
b.What is the basis of the 100 stock rights?

Accepted Answer

The answer of Gina owns 100 shares of XYZ common...

Question 10

Kate subdivides land held as an investment and Section 1237 is satisfied.The lots sell for $30,000 per lot (basis $10,000).Kate sells five lots in the first year.Kate's ordinary income is

Accepted Answer

A) The gain on the first five lots is capital gain.

Question 11

A building used in a trade or business is a capital asset.

Accepted Answer

Section 1221 specifically excludes depreciable property used in a trade or business from the definition of capital assets.

Question 12

Emma Grace acquires three machines for $80,000,which have FMVs of $32,000,$28,000,and $20,000 respectively.The delivery cost is $500,and installation costs amount to $2,500.What is the basis of each machine?

Accepted Answer

The answer of Emma Grace acquires three machines for $80,000,which...

Question 13

Donald has retired from his job as a corporate manager.He buys and sells stocks on a daily basis.He spends 8-9 hours daily studying prospective stock purchases and market news.What tax issues should Donald consider?

Accepted Answer

The answer of Donald has retired from his job as...

Question 14

If a capital asset held for one year or more is sold at a gain,the gain is classified as long-term capital gain.

Accepted Answer

The asset must be held for more than one year to qualify as a capital asset.

Question 15

Mike,a dealer in securities and calendar-year taxpayer,purchased a security for inventory on November 18,2016 for $15,000.The FMV on December 31,2016 was $16,000.The security was sold on December 19,2017 for $16,500.These transactions result in

Accepted Answer

D) Marvin is a securities dealer; he recognizes ordinary income when dealing with the property, applying the mark-to-market method. In 2016, he recognizes $1,000 ($16,000 - $15,000); in 2017 he recognizes $500 ($16,500 - $16,000).

Question 16

Which one of the following is a capital asset?

Accepted Answer

B) Under Section 1221, inventory (automobile sold by car dealer) and depreciable property used in the trade or business (automobile used in business) are not capital assets. Personal-use property is a capital asset.

Question 17

Section 1221 specifically states that inventory or property held primarily for sale to customers is not classified as a capital asset of the trade or business.

Accepted Answer

Section 1221 excludes certain assets from the definition of a capital asset. One of those exclusions is inventory.

Question 18

A nonbusiness bad debt is deductible only in the year in which the debt becomes totally worthless.

Accepted Answer

The law requires recognition of a nonbusiness bad debt as a short-term capital loss, but the loss can only be recognized in the year that the debt becomes worthless.

Question 19

Section 1221 of the Code includes a comprehensive list of assets properly classified as capital assets.

Accepted Answer

Section 1221 lists property which is not considered a capital asset.

Question 20

An individual taxpayer who is not a dealer in real estate plans to subdivide a parcel of land into four lots and sell them at a substantial gain.The parcel of land had been held six years.In order to qualify for capital gain treatment,the individual must satisfy all of the requirements except

Accepted Answer

D) All of the criteria noted are required to allow capital gain treatment under the exception to ordinary gain treatment provided by IRC Sec. 1237 for nondealers.

Quiz 5: Property Transactions: Capital Gains and Losses