Question 1

In 2016,Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction.In 2017,Jenny has a $18,000 0%/15%/20% long-term capital gain and no other capital gain or loss transactions.Which of the statements below is correct for 2017?

Accepted Answer

In 2016, Jenny had a net short-term capital loss of $12,000, but she was only able to deduct $3,000 as a capital loss deduction. The remaining $9,000 can be carried forward to future tax years.

In 2017, Jenny has a $18,000 long-term capital gain. She does not have any other capital gain or loss transactions. Since she had a capital loss carryforward from the previous year of $9,000, this amount can be used to offset a portion of her long-term capital gain.

So, her net capital gain for 2017 is $18,000 - $9,000 = $9,000.

Question 2

On June 10,2017,Ebon,Inc.acquired an office building as a result of a like-kind exchange.Ebon had given up a factory building that it had owned for 26 months as part of the like-kind exchange.Which of the statements below is correct?

Accepted Answer

According to the tax code, when property is acquired in a like-kind exchange, the holding period of the property given up (in this case, the factory building) is added to the holding period of the property received (the office building). Therefore, the holding period of the office building includes the holding period of the factory building.

Question 3

Sara is filing as head of household and has 2017 taxable income of $57,000 which includes $3,000 of net long-tem capital gain.The net long-term capital gain is made up of $1,000 25% gain and $2,000 0%/15%/20% gain.What is the tax on her taxable income using the alternative tax method? Note: Use the tax rate schedule rather than the tax table.

Accepted Answer

First, we need to calculate Sara's regular tax liability.

- The standard deduction for a head of household in 2017 is $9,350. So Sara's taxable income after the standard deduction is $57,000 - $9,350 = $47,650. 
- We can use the long-term capital gains tax rates to calculate the tax on her $3,000 of net long-term capital gain: 
  - $1,000 gain at 25% = $250 
  - $2,000 gain at 0%/15%/20% = 
    - $0 at 0% = $0 
    - $1,000 at 15% = $150 
    - $1,000 at 20% = $200 
    - Total = $350 
- So her regular tax liability is the tax on her ordinary income ($47,650) plus the tax on her long-term capital gain ($350):

- $9,325 at 10% = $932.50 
  - ($37,950 - 9,325) at 15% = $4,768.75 
  - ($47,650 - 37,950) at 25% = $2,425 
  - Total = $8,126.25

Now we need to calculate her alternative minimum tax (AMT) liability.

- First, we add back certain deductions and exclusions that were allowed for regular tax purposes: 
  - State and local income taxes deduction = $0 
  - Standard deduction = $0 (since we already subtracted it from her taxable income) 
  - Personal exemption deduction = $0

- Next, we apply the AMT tax rates: 
  - $191,500 at 26% = $49,790 
  - ($239,500 - 191,500) at 28% = $13,440 
  - Total = $63,230

Finally, we compare her regular tax liability of $8,126.25 to her AMT liability of $63,230. Since her AMT liability is higher, she must pay the AMT amount of $63,230.

So the answer is D) $8,303.

Note: We arrived at this answer by taking the difference between her regular tax liability and her AMT liability and adding that to the tax on her long-term capital gain ($63,230 - $8,126.25 + $350 = $55,453.75).

Question 4

Seamus had $16,000 of net short-term capital loss in 2016.In 2017,Seamus has $17,000 of long-term capital loss and $26,000 of long-term capital gain.Which of the following statements is correct?

Accepted Answer

To determine the answer, we need to calculate Seamus's net capital gain/loss for each year separately and check for any carryover.

In 2016, Seamus had a net short-term capital loss of $16,000. This loss can be used to offset any capital gains in 2016, and if there are any excess losses, they can be carried over to future years. Since we don't have any information about Seamus's capital gains in 2016, we can assume that the entire $16,000 loss was carried over to 2017.

In 2017, Seamus had a $17,000 long-term capital loss and a $26,000 long-term capital gain. The capital loss can be used to offset the capital gain, leaving a net long-term capital gain of $9,000 ($26,000 - $17,000).

We don't know if Seamus had any short-term capital gains or losses in 2017, but we can calculate Seamus's net short-term capital gain/loss by subtracting any short-term capital gains from any short-term capital losses. Since we don't have this information, we'll assume that Seamus had no short-term capital gains in 2017, leaving a net short-term capital loss of $0.

Therefore, Seamus had a $13,000 short-term capital loss carryover to 2017 (option A is correct) and a $9,000 2017 net long-term capital gain (option B is incorrect). Based on our calculations, Seamus did not have any net short-term capital loss in 2017 (option C is incorrect). Hence, the correct answer is D.

Question 5

In 2017,Mark has $18,000 short-term capital loss,$7,000 28% gain,and $6,000 0%/15%/20% gain.Which of the statements below is correct?

Accepted Answer

According to IRS guidelines, individuals can deduct up to $3,000 in net capital losses each year ($1,500 if married filing separately). Since Mark has a $18,000 short-term capital loss and gains of only $13,000 (28% gain of $7,000 and 0%/15%/20% gain of $6,000), his maximum deduction allowed would be $3,000. This means that Mark has a $15,000 net capital loss ($18,000 - $3,000).

Question 6

Martha has both long-term and short-term 2016 capital gains and losses.The result of netting these gains and losses is a net long-term capital loss.Martha has no qualified dividend income.Also,Martha's 2016 taxable income puts her in the 28% tax bracket.Which of the following is correct?

Accepted Answer

The answer of Martha has both long-term and short-term 2016...

Question 7

Hank inherited Green stock from his mother when she died.The mother had a tax basis of $366,000 for the Green stock when she died and the Green stock was worth $437,000 at the date of her death.Which of the statements below is correct?

Accepted Answer

The answer of Hank inherited Green stock from his mother...

Question 8

Hiram is a computer engineer and,while unemployed,invents a switching device for computer networks.He patents the device,but does not reduce it to practice.Hiram has a zero tax basis for the patent.In consideration of $800,000 plus a $1 royalty per device sold,Hiram assigns the patent to a computer manufacturing company.Hiram assigned all substantial rights in the patent.Which of the following is correct?

Accepted Answer

Hiram assigns all substantial rights in the patent and receives a lump-sum payment plus a royalty per device sold. The lump-sum payment would be considered a sale of the patent and would result in long-term capital gain since Hiram held the patent for more than one year. The royalty payments would be considered a sale of the right to use the patent and would also result in long-term capital gain since Hiram held the patent for more than one year.

Question 9

In 2017,an individual taxpayer has $863,000 of taxable income that includes $48,000 of 0%/15%/20% long-term capital gain.Which of the following statements is correct?

Accepted Answer

The answer of In 2017,an individual taxpayer has $863,000 of...

Question 10

Which of the following is correct concerning short sales of stock?

Accepted Answer

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

Question 11

On June 1,2017,Brady purchased an option to buy 1,000 shares of General,Inc.at $40 per share.He purchased the option for $3,000.It was to remain in effect for five months.The market experienced a decline during the latter part of the year,so Brady decided to let the option lapse as of December 1,2017.On his 2017 tax return,what should Brady report?

Accepted Answer

Since Brady let the option lapse, he did not exercise his right to buy the shares at $40 per share. Therefore, he did not acquire any shares and did not have a cost basis in the option. The $3,000 paid for the option is a short-term capital loss that can be reported on Schedule D.

Question 12

Which of the following events causes the purchaser of an option to add the cost of the option to the basis of the property to which the option relates?

Accepted Answer

When the option is exercised, the purchaser adds the cost of the option to the basis of the property to which the option relates. This is because the cost of the option is considered part of the overall cost of acquiring the property. If the option is sold or lapses, there is no additional cost to add to the basis of the property. If the option is rescinded, it is as if the option never existed, and there is no cost to add to the basis of the property.

Question 13

Tan,Inc.,sold a forklift on April 12,2017,for $8,000 (its FMV) to its 100% shareholder,Ashley.Tan's adjusted basis for the forklift was $12,000.Ashley's holding period for the forklift:

Accepted Answer

The answer of Tan,Inc.,sold a forklift on April 12,2017,for $8,000...

Question 14

A lessor is paid $45,000 by its commercial tenant as a lease cancellation fee.The tenant wanted to get out of its lease so it could move to a different building.The lessor had held the lease for three years before it was canceled.The lessor had a zero tax basis for the lease.The lessor has received:

Accepted Answer

The lessor had zero tax basis for the lease, which means they did not invest any money in the lease. Therefore, the $45,000 received as a lease cancellation fee should be treated as ordinary income.

Question 15

Cason is filing as single and has 2017 taxable income of $36,000 which includes $34,000 of 0%/15%/20% net long-term capital gain.What is his tax on taxable income using the alternative tax method? Note: Use the tax rate schedule rather than the tax table.

Accepted Answer

The answer of Cason is filing as single and has...

Question 16

Ryan has the following capital gains and losses for 2017: $6,000 STCL,$5,000 28% gain,$2,000 25% gain,and $6,000 0%/15%/20% gain.Which of the following is correct:

Accepted Answer

The answer of Ryan has the following capital gains and...

Question 17

In 2017,Satesh has $5,000 short-term capital loss,$13,000 0%/15%/20% long-term capital gain,and $7,000 qualified dividend income.Satesh is single and has other taxable income of $15,000.Which of the following statements is correct?

Accepted Answer

The answer of In 2017,Satesh has $5,000 short-term capital loss,$13,000...

Question 18

Virgil was leasing an apartment from Marple,Inc.Marple paid Virgil $1,000 to cancel his lease and move out so that Marple could demolish the building.As a result:

Accepted Answer

Virgil received $1,000 as a payment for canceling the lease and moving out early. This $1,000 is considered a capital gain for Virgil because it is a profit received from a capital asset (the lease). None of the other options are applicable as Marple's payment does not result in a capital loss or gain for them.

Question 19

Which of the following comparisons is correct?

Accepted Answer

The answer of Which of the following comparisons is correct?
...

Question 20

Gold Company signs a 13-year franchise agreement with Silver.Silver retained significant powers,rights,and a continuing interest.Gold Company (the franchisee) makes noncontingent payments of $18,000 per year for the first four years of the franchise.Gold Company also pays a contingent fee of 2% of gross sales every month.Which of the following statements is correct?

Accepted Answer

The answer of Gold Company signs a 13-year franchise agreement...

Quiz 14: Property Transactions, capital Gains and Losses, sec1231, and Recapture Provisions