Question 1

Determine the proper classification(s)of the asset discussed in the following scenario: Jack bought a new table saw for his home.
I. Personal use property. $ \quad $$ \quad $$ \quad $IV. Intangible property.
II. Business use property. $ \quad $$ \quad $$ \quad $V. Real estate.
III. Tangible property. $ \quad $$ \quad $$ \quad $$ \quad $VI. Personal property.
A)Statements I and III are correct.
B)Only statement VI is correct.
C)Statements II and III are correct.
D)Statements II, III, and VI are correct.
E)Statements I, III, and VI are correct.

Accepted Answer

The asset in question is a tangible property, as it can be physically touched and is not intangible. It is also for personal use, as Jack bought it for his home. Therefore, statements I and III are correct. Additionally, it is not for business use or real estate, as it is not specified that Jack is a business owner or that the table saw is being used as a tool for a business, nor is it a piece of land or building. Lastly, it is personal property, as it is owned by Jack and used for personal purposes. Therefore, statement VI is also correct. Thus, the proper classification(s) of the asset discussed in the scenario are I, III, and VI.

Question 2

Adjusted basis is equal to the initial basis,plus or minus the cumulative effects of adjustments.

Accepted Answer

Adjusted basis takes into account any adjustments that have been made to the property, such as improvements or depreciation. Therefore, it is equal to the initial basis plus or minus the cumulative effects of those adjustments.

Question 3

Phyllis purchased an automobile for $3,000 down and a note for $15,000.During the year she paid interest of $1,000.Her basis is $18,000.

Accepted Answer

Phyllis's basis is the total amount she paid for the automobile, which includes the down payment, note, and interest paid. Therefore, her basis is $3,000 + $15,000 + $1,000 = $19,000, not $18,000.

Question 4

General Telelpnone gave Wynonna $2,000 for an easement for power lines across her property.She must realize the gain or loss on the receipt of cash.

Accepted Answer

The answer of General Telelpnone gave Wynonna $2,000 for an...

Question 5

When a stock dividend is nontaxable,part of the basis of the original stock must be allocated to the new stock received as a dividend.

Accepted Answer

This is correct. When a stock dividend is nontaxable, the basis of the original stock must be allocated between the original shares and the new shares received as a dividend. This is necessary to determine the basis of the new shares for future tax purposes.

Question 6

Determine the proper classification(s)of the asset discussed in the following scenario: Judge Marshall purchased a new gold-trimmed gavel to decorate his living room.
I. Personal use property. $ \quad $$ \quad $$ \quad $IV. Intangible property.
II. Business use property. $ \quad $$ \quad $$ \quad $V. Real estate.
III. Tangible property. $ \quad $$ \quad $$ \quad $$ \quad $VI. Personal property.
A)Statements I and III are correct.
B)Only statement VI is correct.
C)Statements II and III are correct.
D)Statements II, III, and VI are correct.
E)Statements I, III and VI are correct.

Accepted Answer

The asset in the scenario is a tangible property since it is a physical object. It can also be classified as personal use property since it is purchased for personal enjoyment and decoration. Therefore, statements I and III are correct. Additionally, it is also classified as personal property since it is owned by an individual rather than a business or government entity. Therefore, statement VI is also correct. However, it cannot be classified as business use property, real estate, or intangible property since it is not used for business operations, nor is it land or an intangible asset.

Question 7

Brad,an engineering consultant,was given stock valued at $3,000 for services rendered.His basis in the stock he received for the services is zero since he received no cash.

Accepted Answer

Brad's basis in the stock is not zero; it is the fair market value of the services he provided, which in this case is $3,000, the value of the stock he received.

Question 8

Determine the proper classification(s)of the asset discussed in the following scenario: "Cher receives a copyright for a new song she has written"
I. Personal use property. $ \quad $$ \quad $$ \quad $IV. Intangible property.
II. Business use property. $ \quad $$ \quad $$ \quad $V. Real estate.
III. Tangible property. $ \quad $$ \quad $$ \quad $$ \quad $VI. Personal property.
A)Statements I and III are correct.
B)Only statement IV is correct.
C)Statements II and IV are correct.
D)Statements II, IV, and VI are correct
E)Statements II and VI are correct.

Accepted Answer

A copyright is considered intangible property and can be used for business purposes if it generates income.

Question 9

Taxpayers who construct property for their own use must capitalize both the direct and indirect construction costs.

Accepted Answer

According to the IRS rules, taxpayers who construct property for their own use must capitalize both the direct and indirect construction costs. These costs cannot be deducted as a current expense on the tax return but can be recovered through depreciation over the useful life of the property.

Question 10

Determine the proper classification(s)of a house owned and used by Rhonda as her insurance agency office.
I. Personal use property. $ \quad $$ \quad $$ \quad $IV. Intangible property.
II. Business use property. $ \quad $$ \quad $$ \quad $V. Real estate.
III. Tangible property. $ \quad $$ \quad $$ \quad $$ \quad $VI. Personal property.
A)Statements I, III, and V are correct.
B)Statements II, III, and V are correct.
C)Only statements I and V are correct.
D)Only statement V is correct.
E)Only statement II is correct.

Accepted Answer

The house owned and used by Rhonda as her insurance agency office is a business use property (II) and a type of real estate (V), which is tangible property (III). It is not personal use property (I) or intangible property (IV) or personal property (VI). Therefore, statements II, III, and V are correct.

Question 11

Determine the proper classification(s)of a house owned and used by John as his principal residence.
I. Personal use property. $ \quad $$ \quad $$ \quad $IV. Intangible property.
II. Business use property. $ \quad $$ \quad $$ \quad $V. Real estate.
III. Tangible property. $ \quad $$ \quad $$ \quad $$ \quad $VI. Personal property.
A)Statements I, III, and V are correct.
B)Statements I, III, and VI are correct.
C)Only statement I and V are correct.
D)Only statement V is correct.
E)Only statement I is correct.

Accepted Answer

The house owned and used by John as his principal residence is considered personal use property because it is used for personal purposes, tangible property because it is a physical asset, and real estate because it is land and any structures on it. Therefore, statements I, III, and V are all correct. The property is not an intangible asset or personal property, so options IV and VI are not applicable.

Question 12

The split basis rules for business property prevent the deduction of the disallowed personal loss through depreciation or a loss from the sale of business property.

Accepted Answer

The split basis rules for business property do prevent the deduction of the disallowed personal loss through depreciation or a loss from the sale of business property. This means that if a business property is used for both personal and business purposes, the portion of the property that is used for personal purposes cannot be deducted as a loss or through depreciation.

Question 13

An asset's holding period normally begins on the day after it is acquired and ends on the day of its disposition.

Accepted Answer

The holding period of an asset starts the day after it is acquired and ends on the day of its disposition.

Question 14

Whenever the donor's adjusted basis is used to compute a gain or loss on the donee's disposition of property received by gift,the donee's holding period is always the period of time the property was owned by the donee only.

Accepted Answer

When the donor's adjusted basis is used for determining gain or loss, the donee's holding period includes the time the property was held by the donor, effectively tacking the donor's holding period onto the donee's.

Question 15

Determine the proper classification(s)of the asset discussed in the following scenario: Victoria purchased a new show case saw for her antique business.
I. Personal use property. $ \quad $$ \quad $$ \quad $IV. Intangible property.
II. Business use property. $ \quad $$ \quad $$ \quad $V. Real estate.
III. Tangible property. $ \quad $$ \quad $$ \quad $$ \quad $VI. Personal property.
A)Statements I, III and VI are correct.
B)Statements II and III are correct.
C)Only statement VI is correct.
D)Statements II, III, and VI are correct.
E)Statements II, IV and VI are correct.

Accepted Answer

The asset in question is a tangible property (III) that is being used for business purposes (II), therefore D is the correct answer. It is not personal use property or intangible property (I and IV). Real estate is not mentioned, so it is not a correct classification (V). It is also not personal property as it is being used for business purposes (VI).

Question 16

When a security is sold at a loss and and a substantially identical security has been purchased within 30 days before the sale date the loss is disallowed because it is classified as a wash sale.

Accepted Answer

This is known as the wash sale rule. It is designed to prevent investors from selling securities at a loss for tax purposes, only to turn around and purchase the same or a substantially identical security soon after. If a wash sale occurs, the loss is disallowed and must be added to the basis of the newly acquired security.

Question 17

The split basis rule for determining the basis of gifts allows for the transfer of unrealized losses from one taxpayer to another for calculation of gains.

Accepted Answer

The answer of The split basis rule for determining the...

Question 18

Determine the proper classification(s)of the asset discussed in the following scenario: Judge Ruiz purchased a new brass-trimmed gavel to use in her courtroom.
I. Personal use property. $ \quad $$ \quad $$ \quad $IV. Intangible property.
II. Business use property. $ \quad $$ \quad $$ \quad $V. Real estate.
III. Tangible property. $ \quad $$ \quad $$ \quad $$ \quad $VI. Personal property.
A)Statements I and III are correct.
B)Only statement VI is correct.
C)Statements II and III are correct.
D)Statements II, III, and VI are correct.
E)Statements II and VI are correct.

Accepted Answer

The gavel is tangible property (III) that is used in Judge Ruiz's business (II). It is also personal property (VI) because it is not real estate (V) or intangible property (IV).

Question 19

The general rule for determining the basis of inherited property is that the basis in the hands of the heir is its fair market value at the date of death or at the alternative valuation date.

Accepted Answer

This is the general rule for determining the basis of inherited property according to the IRS.

Question 20

Pedro purchased all of the stock of Regis Corporation.Since he purchased all of the stock the basis in all of the corporation's assets must be restated to fair market value.

Accepted Answer

Purchasing all of the stock of a corporation does not trigger a revaluation of the corporation's assets to fair market value; the basis of the assets remains unchanged unless a specific election or transaction, such as an asset purchase agreement, is made to step up the basis.

Quiz 9: Acquisitions of Property