Deck 11: Property Dispositions

Question 1

Allie, a well-known artist, gave one of her paintings to her nephew Alfred. When Alfred sells the painting he will have a capital gain.

Answer 1

False

Question 2

Carlos received an antique dresser from his aunt. Since the dresser is worth $6,000 more than what his aunt paid for it, the holding period begins with the date of the gift.

Answer 2

False

Question 3

Marilyn sells 200 shares of General Motors stock for $80 per share. She pays a $100 commission on the sale and has an adjusted basis of $8,000 on the stock.
I)The amount realized from the sale is $15,900.
II)Marilyn has a recognized gain of $8,000.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Answer 3

A

Question 4

Net collectibles gains are taxed at a maximum rate of 28%.

Question 5

When a taxpayer sells only a portion of the securities that they own, the average cost method is used to establish the cost basis for the shares sold.

Question 6

The lookback recapture rule nets the current-year net Section 1231 gain against Section 1231 ordinary loss deductions taken in the previous three years.

Question 7

Section 1231 assets are certain trade or business assets that are not capital assets but are treated as such when sold at a gain or a loss.

Question 8

Unrecaptured Section 1250 gain is the amount of gain on the sale of personal assets by individuals not otherwise treated as ordinary income.

Question 9

For depreciable real property, all depreciation taken must be recaptured and treated as ordinary income.

Question 10

All of the gain from the sale of qualified small business stock, purchased after 9/27/2010 and held more than five years is excluded from tax.

Question 11

Adjustments to gross selling price include
I)the amount of a seller's expenses paid by the buyer.
II)the amount of the buyer's debt assumed by the seller.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 12

Brock exchanges property with an adjusted basis of $40,000 subject to a mortgage of $20,000 for other property owned by Reese with a fair market value of $80,000. Reese assumes the mortgage. No cash or other assets were part of the trade. Brock's amount realized is

A)$40,000
B)$50,000
C)$80,000
D)$90,000
E)$100,000

Question 13

A buyer's assumption of the seller's debt increases the gross sales price and any debt of the buyer assumed by the seller in the transaction also increases the gross sales price.

Question 14

Gains on the sale of certain types of business assets, referred to as Section 1231 property, are always treated as capital gains.

Question 15

Drew traded his office copier in for a new one. The old copier had an adjusted basis of $400. The new copier cost $1,350, and he was given a trade-in allowance of $500.
I)The amount realized is $400.
II)Drew has a realized gain of $100.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 16

The gain from the sale of qualified small business stock held for more than six months can be rolled over if stock from another qualified small business is purchased within 60 days.

Question 17

Gross selling price includes
I)the amount of a seller's debt assumed by the buyer.
II)the fair market value of services received by the seller from the buyer.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 18

Section 1245 property is subject to a full recapture of all depreciation taken as ordinary income.

Question 19

Unrecaptured Section 1250 gain is taxed at a maximum rate of 25%.

Question 20

The amount realized equals the gross selling price less any selling expenses.

Question 21

Melissa sells stock she purchased in 2005 for a $7,500 gain in 2018. In August 2018, she also sells land she purchased as an investment in December 2017 at a loss of $12,000.
I)Melissa's tax on the $7,500 gain is $1,125.
II)Melissa has a deductible capital loss of $3,000 in 2018.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 22

Long-term capital gain classification is advantageous to taxpayers because of which of the following?
I)Long-term capital gains are generally taxed at a lower rate than ordinary income.
II)Part of a long-term capital game is excluded from income.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 23

Morgan has the following capital gains and losses for the current tax year
?
$$\begin{array} { l r } \text { Short-term capital gains } & \$ 12,000 \\\text { Long-term capital gains } & 3,000 \\\text { Short-term capital losses } & ( 7,000 ) \\\text { Long-term capital losses } & ( 6,000 )\end{array}$$
What is Morgan's net capital gain or loss position for the year?

A)$5,000 net short-term capital gain.
B)$2,000 net long-term capital loss.
C)$2,000 net short-term capital gain.
D)$3,000 net long-term capital loss.
E)$4,000 net short-term capital loss.

Question 24

Serenity has the following capital gains and losses for the current year:
?
$$\begin{array} { l c } \text { Short-term capital loss } & \$ ( 8,000 ) \\\text { Long-term capital gain } & 3,000 \\\text { Collectible gain } & 2,000 \\\text { Collectible loss } & ( 4,000 )\end{array}$$
If Serenity is single and has taxable income from other sources of $75,000, what is the impact of her capital gains and losses on her income tax liability?

A)$300 decrease.
B)$450 decrease.
C)$660 decrease.
D)$720 decrease.
E)$840 decrease.

Question 25

Corky receives a gift of property from her Aunt Cynthia. Cynthia purchased the property 17 years ago for $375,000. On the date of the gift, the property is appraised at $500,000. What is Corky's holding period for the property if she sells it one month after the gift was completed?

A)Short-term.
B)Long-term.
C)Holding period is not relevant since the gain is ordinary.
D)Holding period classification cannot be determined without knowing the selling price.

Question 26

Virginia and Dan each own investment realty that they would like to trade. Virginia's property is subject to mortgage debt of $2,000 and has a net of mortgage value of $6,000. Dan's property is subject to mortgage debt of $30,000 and has a net of mortgage value of $5,000. Virginia and Dan agree to exchange properties and assume each other's debt. Dan pays Virginia $1,000 cash, and the exchange is completed. What is the gross selling price of Virginia's property?

A)$2,000
B)$6,000
C)$8,000
D)$5,000
E)$35,000

Question 27

Joyce receives investment property from her mother as a gift in 2018. Her mother paid $15,000 for the property in 2012, and it is valued at $18,000 on the date of the gift. Joyce sells the property eight months later for $16,000. Joyce's realized gain or loss is

A)$1,000 loss
B)$2,000 loss
C)$1,000 gain
D)$2,000 gain
E)$16,000 gain

Question 28

In July 2018, Hillary sells a stamp from her stamp collection at a gain of $500. Hillary purchased the stamp in 2011. If Hillary is in the 22% marginal tax rate bracket and has no other capital asset sales in 2018, what is her tax on the sale of the stamp?

A)$- 0 -
B)$25
C)$50
D)$75
E)$110

Question 29

When her property was fully depreciated and was still encumbered by a mortgage of $6,000, Jamelle sells it subject to the mortgage to David for $1,000. What is Jamelle's realized gain or loss?

A)$ - 0 -
B)$1,000 gain
C)$5,000 gain
D)$6,000 gain
E)$7,000 gain

Question 30

A capital asset includes which of the following?
I)real estate held as an investment in rental property.
II)the copyright to a song held by its writer.
III)real estate used in a trade or business.
IV)accounts receivable.
​

A)Only statement I is correct.
B)Statements I and II are correct.
C)Statements III and IV are correct.
D)Statements I, II, and III are correct.
E)Statements I, II, III, and IV are correct.

Question 31

Cathy owns property subject to a mortgage of $5,000. Annual real estate taxes are $800 and are due and payable on December 31. Cathy sells her property on July 1 of the current year. The buyer assumes her $5,000 mortgage, and Cathy agrees to finance the sale by taking a mortgage note of $50,000 and property valued at $7,500. The buyer agrees to pay the seller's portion of the property taxes. What is Cathy's amount realized?

A)$50,000
B)$57,500
C)$62,500
D)$62,900
E)$63,300

Question 32

In September 2018, Eduardo sells stock he purchased in October 2014 at a gain of $5,000. If Eduardo is in the 10% marginal tax rate bracket and he has no other capital asset sales in 2018, what is his tax on the sale of the stock?

A)$- 0 -
B)$500
C)$750
D)$1,000
E)$1,250

Question 33

All of the following are capital assets with the exception of

A)Stocks and bonds.
B)Office furniture used in a business
C)Monet painting privately held.
D)Apartment building held for investment.
E)Personal residence.

Question 34

In July 2018, Harriet sells a stamp from her stamp collection at a gain of $500. Harriet purchased the stamp in 2010. If Harriet is in the 35% marginal tax rate bracket and has no other capital asset sales in 2018, what is her tax on the sale of the stamp?

A)$50
B)$75
C)$125
D)$140
E)$175

Question 35

Brenda sells stock she purchased in 2005 for a $7,500 gain in 2018. In August 2018, she also sells land she purchased as an investment in December 2017 at a loss of $9,000.
I)For 2018, Brenda's tax on the $7,500 gain is $1,125.
II)Brenda can deduct $3,000 of the $9,000 loss in 2018.
III)For 2018, Brenda has a net long-term capital loss of $9,000.
IV)Brenda can only deduct a capital loss of $1,500 in 2018.
​

A)Statements I and II are correct.
B)Statements I, II and IV are correct.
C)Only statement II is correct.
D)Only statement IV is correct.
E)Statements I, II and III are correct.

Question 36

Courtney and Nikki each own investment realty that they would like to trade. Courtney's property is subject to mortgage debt of $10,000, and its appraised fair market value is $25,000. Nikki's property is subject to mortgage debt of $17,000, and its appraised fair market value is $25,000. Courtney and Nikki agree to exchange the properties and assume each other's debt. To complete the exchange, who pays cash and how much will that person have to pay?

A)Courtney pays $15,000.
B)Nikki pays $7,000.
C)Nikki pays $8,000.
D)Courtney pays $7,000.
E)Neither person pays anything.

Question 37

Terry receives investment property from her mother as a gift in 2018. Her mother paid $15,000 for the property in 2012, and it is valued at $18,000 on the date of the gift. Terry sells the property eight months later for $16,000. Terry's gain or loss is

A)Short-term ordinary loss.
B)Short-term capital gain.
C)Short-term capital loss.
D)Long-term ordinary gain.
E)Long-term capital gain.

Question 38

LeRoy has the following capital gains and losses for the current year:
?
$\begin{array}{lr}\text { Short-term capital gain } & \$ 10,000 \\\text { Collectible loss } & (3,000) \\\text { Long-term capital gain } & 5,000\end{array}$

If LeRoy is single and has taxable income from other sources of $52,000, what is the tax on his capital gains?

A)$1,800
B)$2,500
C)$2,640
D)$3,000

Question 39

Gabrielle has the following gains and losses for the current year:
?
$$\begin{array} { l r } \text { Short-term capital loss } & \$ ( 8,000 ) \\\text { Long-term capital gain } & 3,000 \\\text { Section } 1231 \text { gain } & 3,000 \\\text { Section } 1231 \text { loss } & ( 5,000 )\end{array}$$
What is Gabrielle's net capital gain or loss position for the year?

A)$7,000 net short-term capital loss.
B)$3,000 net short-term capital gain.
C)$5,000 net short-term capital loss.
D)$3,000 net short-term capital gain

Question 40

William has the following capital gains and losses for the current year:
?
$\begin{array}{lr}\text { Short-term capital gain } & \$ 10,000 \\\text { Short-term capital loss } & (3,000) \\\text { Long-term capital gain } & 5,000\end{array}$
What is William's net capital gain or loss position for the year?

A)Short-term capital gain $7,000; Long-term capital gain $5,000.
B)Short-term capital gain $10,000; Long-term capital gain $2,000.
C)Short-term capital gain $7,000; Long-term capital gain $2,000.
D)Short-term capital gain $10,000; Long-term capital gain $5,000

Question 41

Sigma Corporation had the following capital gains and losses for 2014 through 2018:
?
$$\begin{array} { c c c c c } 2014 & 2015 & 2016 & 2017 & 2018 \\\$ 30,000 & \$ ( 20,000 ) & \$ 15,000 & \$ ( 30,000 ) & \$ 60,000\end{array}$$
Sigma's net capital gain for 2018 is:

A)$25,000
B)$30,000
C)$35,000
D)$55,000
E)$60,000

Question 42

Victor bought 100 shares of stock of Wabash Manufacturing Corporation from an unrelated individual paying $1 per share on December 20, 2017. On April 17, 2018, the corporation is declared bankrupt and the shares are deemed worthless. What is the amount and character of Victor's recognized loss as a result of the bankruptcy?

A)$100 short-term capital loss.
B)$100 long-term capital loss.
C)$100 ordinary loss.
D)No gain or loss until the stock is sold.
E)The amount is $100, but the character is indeterminable from the information given.

Question 43

Phi Corporation had the following capital gains and losses for 2016 through 2018:
?
$$\begin{array} { c c c } 2016 & 2017 & 2018 \\\$ 15,000 & \$ ( 40,000 ) & \$ 10,000\end{array}$$
I.Phi can deduct a loss of $\$ 15,000$ in 2018 .
II.Phi will carry forward a $\$ 15,000$ capital loss to 2019 .

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 44

A taxable entity has the following capital gains and losses in 2018:
?
$\begin{array}{lr}\text { Short-term capital loss } & \$(20,000) \\\text { Long-term capital gain } & 13,000\end{array}$

I.If the entity is an individual, $a \$ 7,000$ deduction is all owed in 2018 .
II.If the entity is a corporation, no deduction is allowed in 2018.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 45

Omicron Corporation had the following capital gains and losses for 2016 through 2018:
?
$$\begin{array} { c c c } 2016 & 2017 & 2018 \\\$ 15,000 & \$ ( 30,000 ) & \$ 60,000\end{array}$$
Omicron's net capital gain for 2018 is:

A)$20,000
B)$30,000
C)$45,000
D)$60,000

Question 46

When securities are sold and the securities were purchased on different dates and at different prices
I)the basis of the shares may be determined on a first-in, first-out basis.
II)the basis of the shares may be determined on a last-in, first-out basis.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 47

When a security becomes worthless
I)no loss can be deducted because a realization has not occurred.
II)the measure of the loss is the adjusted basis of the securities.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 48

A taxable entity has the following capital gains and losses in 2018:
?
$\begin{array}{lr}\text { Short-term capital loss } & \$(22,000) \\\text { Long-term capital gain } & 15,000\end{array}$

I.If the entity is an individual, a $\$ 3,000$ deduction is allowed in 2018 .
II. If the entity is a corporation, a $\$ 7,000$ deduction is allowed in 2018 .

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 49

Sidney, a single taxpayer, has taxable income of $45,000 from all sources except capital gains. He has a long-term capital gain of $1,000. What is the actual tax savings Sidney receives because of any special treatment of his $1,000 long-term capital gain?

A)$-0-
B)$20
C)$70
D)$150
E)$220

Question 50

Cheryl purchased 500 shares of Qualified Small Business Stock (QSB) for $900,000 on March 2, 2010. On November 29, 2018, she sells the stock for $1,000,000. Cheryl also sells 100 shares of stock she acquired two years ago realizing a loss of $10,000. Cheryl has $180,000 of other income. Which of the following statements about the stock sale is/are true?
I)The tax paid on Cheryl's two stock sales is $4,200.
II)Cheryl can only deduct $3,000 of the $10,000 loss on the sale of the stock.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 51

Rachael purchased 500 shares of Qualified Small Business Stock (QSB) for $900,000 on March 2, 2009. On November 29, 2018, she sells the stock for $1,000,000. Rachael also sells 100 shares of stock she acquired two years ago realizing a loss of $10,000. Which of the following explain(s) tax consequences of the QSB stock sale?
I)The effective tax rate applied to the net gain on the sale of the QSB stock is 15%.
II)Rachael nets her $10,000 loss with her $100,000 gain after applying her exclusion rate.
III)Rachael is eligible for a 75% exclusion of the gain from the QSB stock sale.
IV)The QSB stock is QSB stock partly because Rachael held the stock for the required 3-year minimum.
​

A)Statements I and II are correct.
B)Statements II and III are correct.
C)Statements III and IV are correct.
D)Statements I, II, and III are correct.
E)Statements I, II, III, and IV are correct.

Question 52

Capital gain and loss planning strategies include
I)the optimal action of using capital gains to reduce an individual taxpayer's net capital loss for a year to zero.
II)selling enough capital assets to create a $3,000 capital loss.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 53

Raymond, a single taxpayer, has taxable income of $210,000 from all sources except capital gains. He has a $10,000 gain from the sale of qualified small business stock he acquired in 1995. What is the total tax saving Raymond receives because of any special treatment of his $10,000 long-term capital gain on small business stock?

A)$700
B)$1,150
C)$1,400
D)$2,100
E)$2,800

Question 54

Dwight, a single taxpayer, has taxable income of $75,000 from all sources except capital gains. He has a collectibles gain of $1,000. What is the actual tax saving Dwight receives because of any special treatment of his $1,000 collectibles gain?

A)$-0-
B)$12
C)$160
D)$180
E)$280

Question 55

Pamela purchased 500 shares of Qualified Small Business Stock (QSB) for $900,000 on October 2, 2012. On November 29, 2018, she sells the stock for $1,000,000. Pamela also sells 100 shares of stock she acquired two years ago realizing a loss of $10,000. Pamela has $100,000 of other income. Which of the following statements about the stock sale is/are true?
I)Pamela will pay no tax on the two stock sales.
II)Pamela can only deduct $3,000 of the $10,000 loss on the sale of the stock.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 56

The exclusion of a percentage of the capital gain realized on the sale of qualified small business stock acquired after September 27, 2010, results in an effective tax rate on these capital gains of

A)0%
B)7.0%
C)14.0%
D)15.0%
E)28.0%

Question 57

Santana purchased 200 shares of Neffer, Inc. Common Stock on November 13, 2017, for $3,400 and paid a $200 commission. On December 28, 2017, Santana received a $2 per share cash dividend from Neffer. On June 17, 2018, Neffer declares and distributes a 2 for 1 stock split. On August 4, 2018, Santana purchased an additional 300 shares of Neffer, Inc. Common Stock for $4,200 plus a $300 commission. On November 22, 2018, Santana sells 500 shares of Neffer, Inc. stock for $6,000 and pays a $400 commission on the sale. Santana's gain (loss) on the sale is

A)$500 loss
B)$500 gain
C)$2,700 loss
D)$2,000 gain
E)$3,600 loss

Question 58

The exclusion of a percentage of the capital gain realized on the sale of qualified small business stock acquired after February 17, 2009, and before September 27, 2010, results in an effective tax rate on these capital gains of

A)7.0%
B)14.0%
C)15.0%
D)27.0%
E)30.0%

Question 59

Sally owns 700 shares of Fashion Styles Clothing common stock. Sally purchased the 700 shares as follows:
?
$$\begin{array} { c c c } \text { Purchase Date } & \text { Number of Shares } & \text { Total Cost } \\\text { March } 2014 & 200 & \$ 2,000 \\\text { August } 2014 & 300 & \$ 3,600 \\\text { January } 2015 & 200 & \$ 3,000\end{array}$$
As of December 29, 2018, Sally has not sold any securities. She needs to send a tuition payment of $5,200 to her daughter's boarding school in Zurich before year-end. Since the Fashion Styles Clothing stock is selling for $13 per share, Sally plans to dispose of 400 shares to cover the tuition. Ignoring commissions and transaction costs, what is the optimal tax result of selling 400 shares?

A)$- 0 - gain or loss.
B)$200 long-term capital loss.
C)$100 long-term capital gain.
D)$800 long-term capital loss
E)$800 long-term capital gain

Question 60

Sybil purchased 500 shares of Qualified Small Business Stock (QSB) for $25,000 on March 2, 2003. On November 29, 2018, she sells the stock for $125,000. Sybil also sells 100 shares of stock she acquired two years ago realizing a gain of $20,000. Sybil has $100,000 of other income. Which of the following statements about the stock sale is/are true?
I)The tax paid on Sybil's two stock sales is $17,000.
II)The tax rate on the $20,000 gain is 15%.
​

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 61

Which of the following is not a capital asset?

A)Office building used as a rental property by a real estate professional.
B)Antique automobile.
C)Land held for investment.
D)Stock held for investment.

Question 62

Trojan Inc. was incorporated in 2015. In 2015, it had no Section 1231 transactions. In 2016, Trojan had a net Section 1231 loss of $35,000. In 2017, Trojan had a net Section 1231 gain of $10,000. In 2018 Trojan has a $50,000 net Section 1231 gain. Trojan should treat the 2018 gain as

A)An ordinary gain of $40,000.
B)A long-term capital gain of $50,000.
C)An ordinary gain of $35,000 and a long-term capital gain of $15,000.
D)An ordinary gain of $25,000 and a long-term capital gain of $25,000.
E)An ordinary gain of $15,000 and a long-term capital gain of $35,000.

Question 63

Which of the following is not a capital asset?

A)Office building used by a CPA firm.
B)Antique automobile held by an antique automobile collector.
C)Land held for investment.
D)Stock held for investment.

Question 64

Tory sells General Electric stock (owned 10 years) for a $40,000 gain in the current year. In addition, she had a loss of $20,000 on the sale of one acre of land used in her trade or business. The land was purchased five years ago. Tory's net Section 1231 gain (loss) for the current year is:

A)$- 0 -
B)$20,000
C)$(20,000)
D)$40,000

Question 65

Tracey sells General Electric stock (owned 10 years) for a $40,000 gain in the current year. In addition, she has a loss of $20,000 on the sale of one acre of land used in her trade or business. The land was purchased five years ago. Tracey's net capital gain (loss) for the current year is:

A)$(20,000)
B)$- 0 -
C)$20,000
D)$40,000

Question 66

Which of the following properties that was sold during January 2018 is Section 1231 property for Baylan Toy Manufacturing Corporation?
I)Automobile purchased in 2014.
II)Land used in the business since 2015.
III)Factory building purchased and placed into service in May 2017.
IV)Office building purchased and placed into service in June 2014.
​

A)Only statement I is correct.
B)Statements I, II, and IV are correct.
C)Statements III and IV are correct.
D)Statements II and III are correct.
E)Statements I, II, III, and IV are correct.

Question 67

Pidgeon, Inc. has the following gains and losses from Section 1231 property during 2018:
?
$$\begin{array} { l c } \text { Casualty losses } & \$ ( 4,000 ) \\\text { Casualty gains } & 5,000 \\\text { Section } 1231 \text { gains } & 6,000 \\\text { Section } 1231 \text { losses } & ( 3,000 )\end{array}$$
No net Section 1231 losses have been deducted as ordinary losses in prior years. How much of the 2018 Section 1231 gains and losses are recognized as long-term capital gains?

A)$- 0 -
B)$1,000
C)$3,000
D)$4,000
E)$6,000

Question 68

Benjamin has a $15,000 Section 1231 gain from the sale of business-use real estate and a $3,500 long-term capital gain from the sale of Rhyne Corporation stock. Also, he suffers an $18,000 (net of insurance reimbursements and the $100 floor) personal-use property casualty loss. No net Section 1231 losses have been deducted as ordinary losses in prior years. Benjamin's current-year adjusted gross income will increase (decrease) by what amount?

A)$500
B)$3,500
C)$15,000
D)$15,800
E)$18,500

Question 69

Stan sells a piece of land he used in his auto repair business at a gain of $13,000 in 2018. In addition, Stan sells equipment he purchased in 2013 for $8,000. He paid $20,000 for the equipment that had an adjusted basis of $12,000 when it was sold. He also sells some stock in 2018 at a loss of $11,000. No losses on the disposition of assets were recognized in prior years. The effect of these transactions on Stan's 2018 taxable income is:

A)Decrease of $2,000.
B)Decrease of $3,000.
C)Increase of $6,000.
D)Increase of $10,000.

Question 70

Section 1231 property receives preferential tax treatment. The preference(s) include(s)
I)Net Section 1231 losses are deductible as short-term capital losses.
II)Net Section 1231 gains are reportable as long-term capital gains.
III)Net Section 1231 losses are deductible as long-term capital losses.
IV)Net Section 1231 losses are deductible as ordinary losses.
​

A)Statements I and II are correct.
B)Only statement I is correct.
C)Statements II and IV are correct.
D)Only statement III is correct.
E)Statements II and III are correct.

Question 71

Hank realizes Section 1231 losses of $12,000 and Section 1231 gains of $7,000 during the current year. Hank's current-year adjusted gross income will increase (decrease) by what amount?

A)$(12,000)
B)$(5,000)
C)$(3,000)
D)$7,000

Question 72

The Section 1231 netting procedure involves several steps. What is the proper order of these steps?
I)All Section 1231 gains and losses for the year are netted.
II)All casualty (theft) gains and losses on Section 1231 property are netted.
III)Current-year net Section 1231 gain is netted against any Section 1231 ordinary loss deductions taken in the previous 5 years.
​

A)Statements I, III, and II.
B)Statements II, I, and III.
C)Statements III, I, and II.
D)Statements III, II, and I.
E)Statements I, II, and III.

Question 73

Davidson Corporation has the following gains and losses from Section 1231 property during 2018:
?
$$\begin{array} { l c } \text { Casualty losses } & \$ ( 6,000 ) \\\text { Casualty gains } & 7,000 \\\text { Section } 1231 \text { gains } & 6,000 \\\text { Section } 1231 \text { losses } & ( 9,000 )\end{array}$$
No net Section 1231 losses have been deducted as ordinary losses in prior years. How much of the 2018 Section 1231 gains and losses are recognized as long-term capital gains?

A)$- 0 -
B)$1,000
C)$2,000
D)$3,000
E)$6,000

Question 74

Section 1231 assets include

A)Inventory.
B)Stocks and bonds.
C)Personal residence.
D)Business-use realty.
E)Personal automobile.

Question 75

Assets eligible for preferential treatment under Section 1231 include
I)Certain assets held for less than a year.
II)Real estate used in a business held for more than a year.
III)Horses held for more than two years.
IV)Lumber held by a lumber store.
​

A)Only statement I is correct.
B)Statements II, III, and IV are correct.
C)Statements I, III, and IV are correct.
D)Statements II and III are correct.
E)Statements I, II, III, and IV are correct.

Question 76

Tonya purchased 500 shares of Home Depot, Inc. common stock on December 13, 2015, at a cost of $3,600. She paid a commission of $150 on the purchase. On February 18, 2017, she received 250 shares of Home Depot, Inc. common stock as a tax-free dividend. Tonya sells 600 shares for $3,700 on January 8, 2018, and pays a $100 commission on the sale. Tonya's gain (loss) on the sale is characterized as:

A)Long-term capital gain of $600.
B)Long-term capital gain of $500; short-term capital gain of $100.
C)Long-term capital loss of $50.
D)Short-term capital gain of $600.

Question 77

During 2018, Silverado Corporation has the following Section 1231 gains and losses:
?
$$\begin{array} { l c } \text { Casualty loss}& \$ ( 10,000 ) \\\text { Section } 1231 \text { gains } & 12,000 \\\text { Section } 1231 \text { losses } & ( 3,000 )\end{array}$$
During the period 2013 - 2017, the corporation recognized $8,000 of net Section 1231 losses as ordinary losses that have not been recaptured. How much of the 2018 Section 1231 gains and losses are recognized as long-term capital gains?

A)$- 0 -
B)$1,000
C)$9,000
D)$10,000
E)$12,000

Question 78

Knox Cable Corporation has the following gains and losses from Section 1231 property during 2018:
?
$$\begin{array} { l r } \text { Casualty losses } & \$ ( 14,000 ) \\\text { Casualty gains } & 5,000 \\\text { Section } 1231 \text { gains } & 9,000 \\\text { Section } 1231 \text { losses } & ( 6,000 )\end{array}$$
No net Section 1231 losses have been deducted as ordinary losses in prior years. How will this information affect Knox's 2018 taxable income?

A)Knox will report a net section 1231 loss of $6,000.
B)Knox will report a capital loss of $9,000 and ordinary income of $3,000.
C)The transactions have no effect on Knox's 2018 taxable income.
D)Knox will deduct a $3,000 capital loss and have ordinary income of $3,000.
E)Knox will report an ordinary loss of $9,000 and a long-term capital gain of $3,000.

Question 79

Stan sells a piece of land he used in his auto repair business at a gain of $9,000 in 2018. In addition, Stan sells equipment he purchased in 2013 for $8,000. He paid $20,000 for the equipment that had an adjusted basis of $12,000 when it was sold. He also sells some stock in 2018 at a loss of $11,000. No losses on the disposition of assets were recognized in prior years. The effect of these transactions on Stan's 2018 taxable income is:

A)Decrease of $6,000.
B)Decrease of $3,000.
C)Increase of $6,000.
D)Zero, with a long-term capital loss carryback of $2,000.
E)Zero, with a long-term capital loss carryback of $6,000.

Question 80

During 2018, Thomas has a net Section 1231 gain of $57,000. In 2018, Thomas reported a net Section 1231 loss of $60,000. What is the character of the 2018 gain?

A)$60,000 long-term capital gain.
B)$60,000 ordinary gain.
C)$57,000 ordinary gain.
D)$57,000 long-term capital loss.
E)$57,000 long-term capital gain.