Question 1

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

Accepted Answer

Gains and losses are generally not recognized when property is disposed of by gift or bequest, as these transactions are typically not considered taxable events.

Question 2

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, sales taxes, and installation costs. Therefore, the cost basis for Houston Printing Co.'s new printing press is $30,000 + $2,000 + $1,000 = $33,000.

Question 3

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
A)$30,000.
B)$35,000.
C)$50,000.
D)$80,000.

Accepted Answer

D

Question 4

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?
A)$0
B)$15,000
C)$25,000
D)$40,000

Accepted Answer

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

Question 5

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). To compute his gain or loss, you would subtract his adjusted basis from the amount realized: $21,500 - $20,000 = $1,500.

Question 6

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?
A)$14,400
B)$16,400
C)$21,400
D)$30,000

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 7

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 is the general rule for determining whether an expenditure is a deductible expense or a capital expenditure.

Question 8

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

Accepted Answer

According to IRS regulations, losses are generally deductible if they were incurred in carrying on a trade or business or incurred in an activity engaged in for profit. However, certain limitations and restrictions may apply, and it is highly recommended to consult with a tax professional for specific advice.

Question 9

Capital recoveries increase the adjusted basis of an asset.

Accepted Answer

Capital recoveries decrease the adjusted basis of an asset, as they represent a return of the asset's cost.

Question 10

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 calculated by subtracting the basis from the amount received upon selling the asset. In this case, $28,000 - $25,000 = $3,000. Therefore, the taxpayer has a realized gain of $3,000.

Question 11

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?
A)$0
B)$20,000
C)$28,000
D)$48,000

Accepted Answer

Antonio's realized gain is calculated as the payment received ($48,000) minus the basis of the land ($28,000), which equals $20,000. Therefore, the correct answer is B) $20,000.

Question 12

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?
A)($14,000)loss
B)($14,500)loss
C)$6,500 gain
D)$7,000 gain

Accepted Answer

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

Question 13

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
A)a gain of $20,000.
B)no gain or loss.
C)a loss of $70,000.
D)a loss of $20,000.

Accepted Answer

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

Question 14

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

The recovery of basis doctrine states that a taxpayer does not recognize gain until the amount received exceeds the original cost or basis of the asset.

Question 15

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

A realized loss occurs only when the asset is sold. Since Brad still holds the shares, the loss is not realized for tax purposes.

Question 16

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

Accepted Answer

Long-term capital assets sold by noncorporate taxpayers can be subject to five different capital gain tax rates depending on the taxpayer's income level and the type of asset sold. These rates range from 0% to 20%.

Question 17

Which one of the following does not affect the adjusted basis of a house held as rental property?
A)depreciation deduction
B)adding a new room to the house
C)painting of more than 50% of the rooms in the home
D)installation of a completely new heating system

Accepted Answer

Painting the rooms in the home does not affect the adjusted basis of the rental property, while depreciation, adding a new room, and installing a new heating system all affect the adjusted basis.

Question 18

All realized gains and losses are recognized for tax purposes.

Accepted Answer

The answer of All realized gains and losses are recognized...

Question 19

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

Accepted Answer

This is true as per the tax laws and accounting principles, all gains and losses are eventually classified as either capital or ordinary. Capital gains and losses are from the sale of capital assets held for more than a year, while ordinary gains and losses are from regular business activities and investments held for less than a year.

Question 20

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
A)$150,000.
B)$151,000.
C)$180,000.
D)$181,000.

Accepted Answer

The adjusted basis is calculated by adding the cost of improvements to the purchase price. The garage and porch are improvements, so $150,000 + $25,000 + $5,000 = $180,000. Repairs do not increase the basis.

Quiz 21: Property Transactions: Capital Gains and Losses

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

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.

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

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?

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.

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.

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

Capital recoveries increase the adjusted basis of an asset.

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.

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?

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?

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

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.

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.

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

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

All realized gains and losses are recognized for tax purposes.

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

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