Question 1

The first step in the capital gain and loss netting process is to combine all capital gains and all capital losses.

Accepted Answer

False

Question 2

For a capital gain or loss to be considered long-term, the asset must generally be held more than one year.

Accepted Answer

Long-term capital gains or losses are those that result from the sale or exchange of an asset held for more than one year. If the asset is held for one year or less, the gain or loss is considered short-term.

Question 3

A personal automobile (i.e., one that is owned by the taxpayer and driven for personal purposes) is an example of a capital asset.

Accepted Answer

A personal automobile is considered a capital asset for tax purposes.

Question 4

A long-term capital loss carryforward is treated as a short-term capital loss in the carryover year by an individual taxpayer.

Accepted Answer

A long-term capital loss carryforward is treated as a long-term capital loss in the carryover year. It retains its original classification as either short-term or long-term, depending on the holding period of the asset that generated the loss.

Question 5

In order for real property to be considered ordinary income property (i.e., inventory rather than a capital asset), the taxpayer's livelihood must be derived primarily from buying and selling real estate.

Accepted Answer

Real property can be considered ordinary income property if it is held by the taxpayer primarily for sale to customers in the ordinary course of a trade or business, regardless of whether the taxpayer's livelihood is primarily derived from buying and selling real estate.

Question 6

Gain or loss resulting from lease cancellation payments is treated as ordinary income.

Accepted Answer

The answer of Gain or loss resulting from lease cancellation...

Question 7

Section 1244 applies to losses, but not gains, resulting from the sale or exchange of § 1244 stock; therefore, any gain on the disposition of such stock held for investment is subject to capital gain treatment.

Accepted Answer

Section 1244 only applies to losses, not gains, meaning that any gain on the sale or exchange of § 1244 stock is subject to capital gain treatment.

Question 8

The holding period of property acquired by gift that is sold at a gain is always treated as having a long-term holding period.

Accepted Answer

The holding period for property acquired by gift takes on the holding period of the donor. If the donor had held the property for over one year, then the property is considered long-term. However, if the donor held the property for one year or less, then the property is considered short-term.

Question 9

A net short-term capital gain (NSTCG) with no further netting, or the excess of a net short-term capital gain over a net long-term capital loss (NSTCG - NLTCL) is treated just like ordinary income for tax computation purposes.

Accepted Answer

An NSTCG is indeed treated like ordinary income for tax computation purposes.

Question 10

The holding period of like-kind property acquired in a qualifying exchange begins on the date of the exchange.

Accepted Answer

The answer of The holding period of like-kind property acquired...

Question 11

Casualties and thefts involving personal-use property are treated as capital gains and losses if the gains exceed the losses from such events for a particular year.

Accepted Answer

Casualties and thefts involving personal-use property are treated as capital gains and losses if the gains exceed the losses from such events for a particular year.

Question 12

A net 15 percent capital gain of a noncorporate taxpayer that would otherwise fall into the 10 percent bracket for a lower-income individual will be taxed at 10 percent.

Accepted Answer

A net 15 percent capital gain for a noncorporate taxpayer that would otherwise fall into the 10 percent bracket is actually taxed at 0 percent, not 10 percent, according to the tax laws in the United States.

Question 13

A net 15 percent capital gain results when a noncorporate taxpayer has a 15 percent capital gain with no capital loss or a net 15 percent capital gain to the extent it exceeds net short-term capital losses.

Accepted Answer

This is a correct statement regarding the calculation of a net 15 percent capital gain for a noncorporate taxpayer.

Question 14

Undeveloped vacant real estate held exclusively for speculation is treated as business property and does not qualify as a capital asset.

Accepted Answer

The answer of Undeveloped vacant real estate held exclusively for...

Question 15

The holding period of stock purchased and sold on a stock exchange begins and ends with the dates of settlement with the broker.

Accepted Answer

The holding period of a stock begins on the day after the purchase date and ends on the day of the sale, not the settlement dates.

Question 16

Capital losses in excess of the annual limitation for individuals are carried forward only.

Accepted Answer

Capital losses in excess of the annual limitation for individuals can be carried forward to future tax years to offset capital gains or up to $3,000 of ordinary income per year until the entire amount is used up. They cannot be carried back to prior tax years.

Question 17

The gain or loss on the disposition of a sole proprietorship is capital gain or loss.

Accepted Answer

The gain or loss on the disposition of a sole proprietorship's assets is considered ordinary income or loss, as it pertains to the sale of business assets, not capital assets.

Question 18

An employer of the creator of a patent cannot be a "holder" of the patent, and therefore cannot qualify for long-term capital gain treatment.

Accepted Answer

Only the actual creator or inventor of a patent can be considered the "holder" of the patent and qualify for long-term capital gain treatment. Even if an employer owns the patent through a work for hire agreement, they still cannot be considered the holder for tax purposes.

Question 19

Both the date of acquisition and the date of sale are included in determining the holding period for a capital asset.

Accepted Answer

For the purpose of determining the holding period of a capital asset, the day of acquisition is counted, but the day of sale is not included.

Question 20

The deduction for excess capital losses for individual taxpayers is limited to the lower of an absolute amount of (a) $3,000 or (b) the taxable income for the year, before the deduction.

Accepted Answer

This is correct as per the rules specified in the IRS tax code section 1211.

Quiz 16: Property Transactions: Capital Gains and Losses

The first step in the capital gain and loss netting process is to combine all capital gains and all capital losses.

For a capital gain or loss to be considered long-term, the asset must generally be held more than one year.

A personal automobile (i.e., one that is owned by the taxpayer and driven for personal purposes) is an example of a capital asset.

A long-term capital loss carryforward is treated as a short-term capital loss in the carryover year by an individual taxpayer.

In order for real property to be considered ordinary income property (i.e., inventory rather than a capital asset), the taxpayer's livelihood must be derived primarily from buying and selling real estate.

Gain or loss resulting from lease cancellation payments is treated as ordinary income.

Section 1244 applies to losses, but not gains, resulting from the sale or exchange of § 1244 stock; therefore, any gain on the disposition of such stock held for investment is subject to capital gain treatment.

The holding period of property acquired by gift that is sold at a gain is always treated as having a long-term holding period.

A net short-term capital gain (NSTCG) with no further netting, or the excess of a net short-term capital gain over a net long-term capital loss (NSTCG - NLTCL) is treated just like ordinary income for tax computation purposes.

The holding period of like-kind property acquired in a qualifying exchange begins on the date of the exchange.

Casualties and thefts involving personal-use property are treated as capital gains and losses if the gains exceed the losses from such events for a particular year.

A net 15 percent capital gain of a noncorporate taxpayer that would otherwise fall into the 10 percent bracket for a lower-income individual will be taxed at 10 percent.

A net 15 percent capital gain results when a noncorporate taxpayer has a 15 percent capital gain with no capital loss or a net 15 percent capital gain to the extent it exceeds net short-term capital losses.

Undeveloped vacant real estate held exclusively for speculation is treated as business property and does not qualify as a capital asset.

The holding period of stock purchased and sold on a stock exchange begins and ends with the dates of settlement with the broker.

Capital losses in excess of the annual limitation for individuals are carried forward only.

The gain or loss on the disposition of a sole proprietorship is capital gain or loss.

An employer of the creator of a patent cannot be a "holder" of the patent, and therefore cannot qualify for long-term capital gain treatment.

Both the date of acquisition and the date of sale are included in determining the holding period for a capital asset.

The deduction for excess capital losses for individual taxpayers is limited to the lower of an absolute amount of (a) $3,000 or (b) the taxable income for the year, before the deduction.