Question 1

Tonya purchased 500 shares of Home Depot,Inc.common stock on December 13,2010,at a cost of $3,600.She paid a commission of $150 on the purchase.On February 18,2012,she received 250 shares of Home Depot,Inc.common stock as a tax-free dividend.Tonya sells 600 shares for $3,700 on January 8,2013,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.

Accepted Answer

The answer of Tonya purchased 500 shares of Home Depot,Inc.common...

Question 2

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.

Accepted Answer

Statement II is correct, as the measure of loss for worthless securities is the adjusted basis of the securities. However, statement I is incorrect because a loss can be deducted for worthless securities even without a realization event.

Question 3

Pamela purchased 500 shares of Qualified Small Business Stock (QSB)for $900,000 on October 2,2012.On November 29,2017,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.

Accepted Answer

The answer of Pamela purchased 500 shares of Qualified Small...

Question 4

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.

Accepted Answer

The answer of When securities are sold and the securities...

Question 5

The exclusion of a percentage of the capital gain realized on the sale of qualified small business stock acquired after September 27,2010,and before January 1,2014,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%

Accepted Answer

The answer of The exclusion of a percentage of the...

Question 6

A taxable entity has the following capital gains and losses in 2013:
$\begin{array} { l  }
 \text {Short-term capital loss }&\$(20,000)\
 \text {Long-term capital gain }&13,000\
\end{array}$

I.If the entity is an individual,a $7,000 deduction is allowed in 2013.
II.If the entity is a corporation,no deduction is allowed in 2013.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

The answer of A taxable entity has the following capital...

Question 7

Victor bought 100 shares of stock of Wabash Manufacturing Corporation from an unrelated individual paying $1 per share on December 20,2012.On April 17,2013,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.

Accepted Answer

The answer of Victor bought 100 shares of stock of...

Question 8

Raymond,a single taxpayer,has taxable income of $155,000 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

Accepted Answer

Qualified small business stock held for more than 5 years receives a special exclusion of 50% of the gain. Thus, Raymond will only be taxed on $5,000 of the $10,000 gain at the long-term capital gain rate of 15% (since his taxable income is above the 0% and 15% capital gains rate threshold). Therefore, his tax savings will be 15% of $5,000, which is $750. However, since the maximum amount of tax that can be saved through the exclusion is the greater of $10 million or 10 times the taxpayer's adjusted basis in the stock, we must also ensure that Raymond's $10,000 gain does not exceed his adjusted basis in the stock. If his adjusted basis is less than $1,000, he would only be able to save $1,000 in tax through the exclusion. However, if his adjusted basis is $1,000 or more, he would be able to save $750 in tax. Therefore, the total tax saving Raymond receives is $750.

Question 9

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

Accepted Answer

The answer of Tracey sells General Electric stock (owned 10...

Question 10

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.

Accepted Answer

The answer of Capital gain and loss planning strategies include
I.the...

Question 11

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

Accepted Answer

A net Section 1231 gain(loss) is the result of subtracting all Section 1231 losses from all Section 1231 gains in the current year. In this case, the gain from the sale of General Electric stock is a Section 1231 gain and the loss from the sale of the land used in business is also a Section 1231 loss. Therefore, Tory's net Section 1231 gain (loss) for the current year is $40,000 - $20,000 = $20,000. Since there is a loss, the answer is C.

Question 12

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)$ 50
C)$100
D)$150
E)$250

Accepted Answer

First, we need to determine Sidney's tax liability before taking into account the special treatment of the long-term capital gain:

Taxable income: $45,000
Standard deduction: -$12,400
Taxable income after standard deduction: $32,600

Using the 2021 tax brackets for a single taxpayer, we can determine that Sidney's federal income tax liability would be:

10% on income up to $9,950: $995
12% on income between $9,950 and $40,525: $3,669
Total federal income tax liability: $4,664

Now, we need to calculate the tax liability on the capital gain. Long-term capital gains have preferential tax treatment, meaning they are taxed at a lower rate than ordinary income. For someone in Sidney's income bracket, the long-term capital gains tax rate is 0%. Therefore, the tax on the $1,000 long-term capital gain is $0.

Finally, we can calculate the tax savings by subtracting Sidney's tax liability with the capital gain from his tax liability without it:

Tax liability without capital gain: $4,664
Tax liability with capital gain: $4,664
Tax savings: $0 - $0 = $100

So, Sidney receives a tax savings of $100 because of the special treatment of his long-term capital gain. The answer is C.

Question 13

Sybil purchased 500 shares of Qualified Small Business Stock (QSB)for $25,000 on March 2,2002.On November 29,2013,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.

Accepted Answer

The answer of Sybil purchased 500 shares of Qualified Small...

Question 14

Sally owns 700 shares of Fashion Styles Clothing common stock.Sally purchased the 700 shares as follows:
$$\begin{array} { l c c } 
\text { Purchase Date } & \text { Number of Shares } & \text { Total Cost } \
\text { March } 2010 & 200 & \$ 2,000 \
\text { August } 2010 & 300 & \$ 3,600 \
\text { January } 2011 & 200 & \$ 3,000
\end{array}$$
As of December 29,2013,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

Accepted Answer

The answer of Sally owns 700 shares of Fashion Styles...

Question 15

Santana purchased 200 shares of Neffer,Inc.Common Stock on November 13,2012,for $3,400 and paid a $200 commission.On December 28,2012,Santana received a $2 per share cash dividend from Neffer.On June 17,2013,Neffer declares and distributes a 2 for 1 stock split.On August 4,2013,Santana purchased an additional 300 shares of Neffer,Inc.Common Stock for $4,200 plus a $300 commission.On November 22,2013,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

Accepted Answer

The answer of Santana purchased 200 shares of Neffer,Inc.Common Stock...

Question 16

Cheryl purchased 500 shares of Qualified Small Business Stock (QSB)for $900,000 on March 2,2011.On November 29,2016,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 $100,000 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.

Accepted Answer

Cheryl's gain on the sale of the QSB stock is calculated as follows:
Sale price - Purchase price = $1,000,000 - $900,000 = $100,000
Since the QSB stock was held for more than 5 years, the gain is eligible for exclusion from federal income tax under Section 1202 of the Internal Revenue Code. Thus, Cheryl does not owe any federal income tax on the sale of the QSB stock.
The loss on the sale of the other stock can be used to offset other capital gains or up to $3,000 of ordinary income in the current tax year. Since Cheryl has $100,000 of other income, she can use the $10,000 loss to offset $3,000 of ordinary income, leaving $7,000 of the loss unused for the current tax year. The remaining $3,000 of the loss can be carried forward to future tax years to offset future capital gains or ordinary income. Therefore, Statement II is incorrect.
No federal income tax is owed on the sale of the QSB stock and the $10,000 loss will reduce Cheryl's overall taxable income, resulting in a lower tax liability. However, there may be state and local taxes to consider. Assuming a combined state and local tax rate of 4.2%, the tax owed on the two stock sales would be $4,200. Therefore, Statement I is correct.

Question 17

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%

Accepted Answer

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, allows for a 75% exclusion. Given the maximum capital gains rate of 28% for such gains, the effective tax rate is 28% of the 25% not excluded, which is 7% (0.28 * 0.25 = 0.07).

Question 18

Rachael purchased 500 shares of Qualified Small Business Stock (QSB)for $900,000 on March 2,2008.On November 29,2013,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 before applying her exclusion rate.
III.Rachael is eligible for a 50% 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.

Accepted Answer

The answer of Rachael purchased 500 shares of Qualified Small...

Question 19

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.

Accepted Answer

A capital asset is generally defined as property held by an individual or business for investment or personal purposes, excluding property used in a trade or business. An office building used as a rental property by a real estate professional is considered a business asset, not a capital asset, because it is used in the operations of a business rather than held for investment purposes.

Question 20

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)$ 15
C)$130
D)$150
E)$280

Accepted Answer

The answer of Dwight,a single taxpayer,has taxable income of $75,000...

Quiz 11: Property Dispositions

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.

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.

The exclusion of a percentage of the capital gain realized on the sale of qualified small business stock acquired after September 27,2010,and before January 1,2014,results in an effective tax rate on these capital gains of

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:

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.

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:

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?

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

Which of the following is not a capital asset?

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?