Question 1

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

This statement is true. According to the generally accepted accounting principles (GAAP), expenses that do not increase the value or extend the life of an asset are generally considered to be operating expenses and are typically expensed in the period in which they are incurred. Examples of such expenses include repairs, maintenance, and utilities.

Question 2

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

True

Question 3

All realized gains and losses are recognized for tax purposes.

Accepted Answer

False

Question 4

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

The answer of Jack exchanged land with an adjusted basis...

Question 5

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

To find the realized gain, we need to subtract the basis from the amount received. 
Realized gain = Amount received - Basis 
Realized gain = $48,000 - $28,000 = $20,000 
Therefore, the realized gain is $20,000, so the best choice is B.

Question 6

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

The answer of Richard exchanges a building with a basis...

Question 7

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

The answer of Courtney sells a cottage at the lake...

Question 8

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

Accepted Answer

This is true according to tax law, as all gains and losses are ultimately classified as either capital or ordinary for tax purposes.

Question 9

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

Accepted Answer

The answer of Gains and losses are recognized when property...

Question 10

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

The cost basis for an asset includes the purchase price plus any additional costs necessary to get the asset ready for its intended use, such as sales taxes and installation fees. Therefore, the cost basis for the printing press would be $33,000 ($30,000 purchase price + $2,000 sales taxes + $1,000 installation fees).

Question 11

Capital recoveries increase the adjusted basis of an asset.

Accepted Answer

The answer of Capital recoveries increase the adjusted basis of...

Question 12

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

The realized gain is the amount by which the selling price exceeds the basis, so in this case the realized gain is $28,000 - $25,000 = $3,000.

Question 13

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

Jordan's adjusted basis in the equipment can be calculated by subtracting the total depreciation claimed and the cost of repairs from the original cost, and then adding the cost of the major overhaul. 
Adjusted basis = Original cost - Depreciation claimed - Cost of repairs + Cost of major overhaul
Adjusted basis = $30,000 - $15,600 - $2,000 + $7,000
Adjusted basis = $19,400
Therefore, the correct answer is (C) $21,400, which is the adjusted basis at the end of the two-year period.

Question 14

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

The answer of Michelle purchased her home for $150,000, and...

Question 15

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

Accepted Answer

Painting more than 50% of the rooms in the home is considered a repair expense and does not affect the adjusted basis of the property. On the other hand, depreciation deduction, adding a new room or installing a new heating system are all considered capital improvements and can affect the adjusted basis of the property.

Question 16

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

The answer of On January 1 of this year, Brad...

Question 17

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

Accepted Answer

This is a general rule under the U.S. tax code, as losses can offset income and reduce tax liability for businesses and individuals engaged in profit-seeking activities. However, there may be limitations and restrictions on the deduction of certain types of losses, such as hobby losses or losses from passive activities. It is important to consult with a tax professional for guidance on specific situations.

Question 18

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 by Rick would be $21,500 ($22,000 - $500 commission), not $1,500.

Question 19

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

Accepted Answer

This is true. The five different capital gain tax rates are 0%, 15%, 20%, 25%, and 28%. The rate that applies depends on the taxpayer's income level and the type of asset being sold.

Question 20

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

The answer of Will exchanges a building with a basis...

Quiz 20: Property Transactions: Capital Gains and Losses