Question 1

A taxable entity has the following capital gains and losses in 2014:

Accepted Answer

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

Question 2

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.

Accepted Answer

When calculating the basis of shares sold, the IRS allows the use of different methods, including first-in, first-out (FIFO) and last-in, first-out (LIFO). Therefore, both statements are correct.

Question 3

Santana purchased 200 shares of Neffer, Inc. Common Stock on November 13, 2013, for $3,400 and paid a $200 commission. On December 28, 2013, Santana received a $2 per share cash dividend from Neffer. On June 17, 2014, Neffer declares and distributes a 2 for 1 stock split. On August 4, 2014, Santana purchased an additional 300 shares of Neffer, Inc. Common Stock for $4,200 plus a $300 commission. On November 22, 2014, 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

Accepted Answer

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

Question 4

Omicron Corporation had the following capital gains and losses for 2012 through 2014:  Omicron's net capital gain for 2014 is:

Accepted Answer

The answer of Omicron Corporation had the following capital gains...

Question 5

Sally owns 700 shares of Fashion Styles Clothing common stock. Sally purchased the 700 shares as follows:   As of December 29, 2014, 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?

Accepted Answer

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

Question 6

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?

Accepted Answer

Long-term capital gains are taxed at a lower rate than ordinary income. For a taxpayer with a taxable income of $45,000, the tax rate for long-term capital gains is 15%. Therefore, Sidney's tax on the $1,000 long-term capital gain is $150 (15% of $1,000). The tax savings he receives compared to if it were taxed as ordinary income (at his marginal tax rate, which is likely higher than 15%) is $100 ($150 - $50). Thus, the correct answer is (C) $100.

Question 7

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.

Accepted Answer

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

Question 8

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.

Accepted Answer

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

Question 9

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?

Accepted Answer

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

Question 10

Sybil purchased 500 shares of Qualified Small Business Stock QSB) for $25,000 on March 2, 2003. On November 29, 2014, 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%.

Accepted Answer

The gain on the QSB stock is eligible for the 100% exclusion, so there is no tax on that gain. The gain on the other stock is taxed at 15%, so the tax on that gain is $20,000 x 15% = $3,000. The total tax paid on both stock sales is $3,000.

Question 11

Rachael purchased 500 shares of Qualified Small Business Stock QSB) for $900,000 on March 2, 2009. On November 29, 2014, 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 explains) 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.

Accepted Answer

Rachael is eligible for a 50% exclusion of the gain from the QSB stock sale because she held the stock for more than 5 years. She can net her $10,000 loss with her $100,000 gain before applying the exclusion.

Question 12

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

Accepted Answer

The exclusion for qualified small business stock acquired during this period is 100%, resulting in a 0% effective tax rate on the capital gains from such stock.

Question 13

Phi Corporation had the following capital gains and losses for 2012 through 2014:  I. Phi can deduct a loss of $15,000 in 2014. II. Phi will carry forward a $15,000 capital loss to 2015.

Accepted Answer

The answer of Phi Corporation had the following capital gains...

Question 14

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

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 15

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?

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 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.

Accepted Answer

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

Question 17

Victor bought 100 shares of stock of Wabash Manufacturing Corporation from an unrelated individual paying $1 per share on December 20, 2013. On April 17, 2014, 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?

Accepted Answer

Victor's recognized loss is a $100 long-term capital loss because the shares were held for more than one year before they became worthless.

Question 18

A taxable entity has the following capital gains and losses in 2014: Short-term capital loss $22,000) Long-term capital gain 15,000 I If the entity is an individual, a $3,000 deduction is allowed in 2014. II. If the entity is a corporation, a $7,000 deduction is allowed in 2014.

Accepted Answer

Individuals can deduct up to $3,000 of net capital losses against other income, while corporations cannot deduct capital losses against other income.

Question 19

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:

Accepted Answer

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

Question 20

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.

Accepted Answer

When a security becomes worthless, the owner can recognize a loss equal to the adjusted basis of the security. This loss can be deducted on the owner's tax return. Therefore, statement II is correct. Statement I is incorrect because a realization does not need to occur in order for a loss to be recognized for tax purposes.

Quiz 11: Property Dispositions