Question 1

A lessor is paid $45,000 by its commercial tenant as a lease cancellation fee.The tenant wanted to get out of its lease so it could move to a different building.The lessor had held the lease for three years before it was canceled.The lessor had a zero tax basis for the lease.The lessor has received:
A)Ordinary income of $45,000.
B)Long-term capital gain of $45,000.
C)Short-term capital gain of $45,000.
D)Neither gain nor loss.
E)None of these.

Accepted Answer

The lessor had a zero tax basis for the lease, meaning they did not incur any cost to acquire the lease. Therefore, the entire lease cancellation fee of $45,000 is considered ordinary income.

Question 2

Martha has both long-term and short-term 2019 capital gains and losses.The result of netting these gains and losses is a net long-term capital loss.Martha has no qualified dividend income.Also, her 2019 taxable income puts her in the 24% tax bracket.Which of the following is correct?
A)Martha will use Parts I, II, and III of 2019 Form 1040 Schedule D.
B)Martha will not benefit from the special treatment for long-term capital gains.
C)Martha will have a capital loss deduction.
D)All of these.
E)None of these.

Accepted Answer

Martha will use Parts I and II of Schedule D to report her short-term and long-term capital gains and losses, respectively, and Part III to summarize these amounts and calculate her net gain or loss. Since she has a net long-term capital loss and no qualified dividend income, she won't benefit from the lower tax rates that apply to long-term capital gains. However, she can still deduct a portion of her capital loss against her ordinary income, up to the annual limit ($3,000 for single or married filing jointly, $1,500 if married filing separately), with any excess carried forward to future years.

Question 3

Lana purchased for $1,410 a $2,000 bond when it was issued two years ago.She amortized $200 of the original issue discount and then sold the bond for $1,800.Which of the following statements is correct?
A)Lana has $10 of long-term capital loss.
B)Lana has $190 of long-term capital gain.
C)Lana has no capital gain or loss.
D)Lana has $190 of long-term capital loss.
E)None of these.

Accepted Answer

The original issue discount of the bond was $2,000 - $1,410 = $590. Lana has amortized $200 of this discount, so the adjusted basis of the bond is $1,410 + $200 = $1,610.

When Lana sells the bond for $1,800, she has a long-term capital gain of $1,800 - $1,610 = $190. This is because she held the bond for more than one year, so the gain is considered long-term.

Therefore, the correct answer is B.

Question 4

Hiram is a computer engineer and, while unemployed, invents a switching device for computer networks.He patents the device but does not reduce it to practice.Hiram has a zero tax basis for the patent.In consideration of $800,000 plus a $1 royalty per device sold, Hiram assigns the patent to a computer manufacturing company.He assigns all substantial rights in the patent.Which of the following is correct?
A)Hiram automatically has long-term capital gain from the lump-sum payment, but not from the royalty payments.
B)Hiram automatically has long-term capital gain from the royalty payments but not from the lump-sum payment.
C)Hiram automatically has long-term capital gain from both the lump-sum payment and the royalty payments.
D)Hiram does not have automatic long-term capital gain from either the lump-sum payment or the royalty payments.
E)None of these.

Accepted Answer

Hiram has assigned all substantial rights in the patent to the computer manufacturing company. Therefore, the lump-sum payment and royalty payments are considered a sale of a capital asset. Since Hiram held the patent for more than one year, he is entitled to long-term capital gain treatment on both the lump-sum payment and the royalty payments.

Question 5

Tan, Inc., sold a forklift on April 12, 2019, for $8,000 (its FMV) to its 100% shareholder, Ashley.Tan's adjusted basis for the forklift was $12,000.Ashley's holding period for the forklift:
A)Includes Tan's holding period for the forklift.
B)Begins on April 12, 2019.
C)Begins on April 13, 2019.
D)Does not begin until Ashley sells the forklift.
E)None of these.

Accepted Answer

The answer of Tan, Inc., sold a forklift on April...

Question 6

Cason is filing as single and has 2019 taxable income of $36,000 which includes $34,000 0%/15%/20% net long-term capital gain.What is his tax on taxable income using the alternative tax method? Note: Use the tax rate schedule rather than the tax table.
A)$0
B)$200
C)$300
D)$4,924
E)None of these.

Accepted Answer

The answer of Cason is filing as single and has...

Question 7

On June 10, 2018, Ebon, Inc.acquired an office building as a result of a like-kind exchange.Ebon had given up a factory building that it had owned for 26 months as part of the like-kind exchange.Which of the following statements is correct?
A)The holding period of the factory building includes the holding period of the office building.
B)The holding period of the office building starts on June 11, 2018.
C)The holding period of the office building starts on June 10, 2018.
D)The holding period of the office building includes the holding period of the factory building.
E)None of these.

Accepted Answer

The holding period of the office building includes the holding period of the factory building. In a like-kind exchange, the holding period of the property given up (the factory building, in this case) is tacked on to the holding period of the property received (the office building). Therefore, Ebon, Inc. can count the 26 months that it owned the factory building towards the holding period of the office building.

Question 8

In 2019, an individual taxpayer has $863,000 of taxable income that includes $48,000 of 0%/15%/20% long-term capital gain.Which of the following statements is correct?
A)All of the LTCG will be taxed at 0%.
B)All of the LTCG will be taxed at 15%.
C)All of the LTCG will be taxed at 20%.
D)Some of the LTCG will be taxed at 15% and some at 20%.
E)None of these.

Accepted Answer

The answer of In 2019, an individual taxpayer has $863,000...

Question 9

Robin Corporation has ordinary income from operations of $30,000, net long-term capital gain of $10,000, and net short-term capital loss of $15,000.What is the taxable income for 2019?
A)$25,000
B)$27,000
C)$28,500
D)$30,000
E)None of these.

Accepted Answer

The answer of Robin Corporation has ordinary income from operations...

Question 10

Sara is filing as head of household and has 2018 taxable income of $57,000, which includes $3,000 of net long-tem capital gain.The net long-term capital gain is made up of $1,000 25% gain and $2,000 0%/15%/20% gain.What is the tax on her taxable income using the alternative tax method? Note: Use the tax rate schedule rather than the tax table.
A)$0
B)$6,978.
C)$6,868.
D)$6,838.
E)None of these.

Accepted Answer

The answer of Sara is filing as head of household...

Question 11

Virgil was leasing an apartment from Marple, Inc.Marple paid Virgil $1,000 to cancel his lease and move out so that Marple could demolish the building.As a result:
A)Virgil has a $1,000 capital gain.
B)Virgil has a $1,000 capital loss.
C)Marple has a $1,000 capital loss.
D)Marple has a $1,000 capital gain.
E)None of these.

Accepted Answer

Virgil received $1,000 from Marple for cancelling the lease and moving out, which is a gain for him. Since he did not incur any expenses related to this transaction, it is considered a capital gain.

Question 12

Which of the following comparisons is correct?
A)Corporations may carry back capital losses; individuals may not.
B)Both corporation and individual long-term capital losses carry over as short-term capital losses.
C)Corporations may carry forward capital losses indefinitely; individuals may carry forward capital losses for only five years.
D)Both corporations and individuals may use an alternative tax rate on net capital gains.
E)None of these.

Accepted Answer

The answer of Which of the following comparisons is correct?
A)Corporations...

Question 13

Which of the following is correct concerning short sales of stock at the time the short sale is made?
A)The taxpayer does not deliver to the purchaser the shares sold short.
B)The taxpayer delivers to the purchaser the shares sold short.
C)The taxpayer may already own the shares sold short.
D)The taxpayer always already owns the shares sold short.
E)None of these.

Accepted Answer

In a short sale, the taxpayer must deliver the shares sold short to the purchaser at the time of the sale. This is different from a regular sale, where the taxpayer already owns the shares being sold. Option A is incorrect, as the taxpayer is required to deliver the shares. Option C is partially correct, as the taxpayer may own the shares being sold, but it is not a requirement. Option D is incorrect, as the taxpayer does not always own the shares being sold short.

Question 14

In 2019, Mark has $18,000 short-term capital loss, $7,000 28% gain, and $6,000 0%/15%/20% gain.Which of the following statements is correct?
A)Mark has a $5,000 capital loss deduction.
B)Mark has a $3,000 capital loss deduction.
C)Mark has a $13,000 net capital gain.
D)Mark has a $5,000 net capital gain.
E)Mark has a $18,000 net capital loss.

Accepted Answer

According to the tax rules, you can use up to $3,000 of your capital losses to offset your ordinary income. In this case, as Mark has only short-term capital loss of $18,000, he can use only $3,000 of it to offset his ordinary income. So, he still has $15,000 of short-term capital loss and $7,000 of long-term capital gain. 
Now, Mark needs to offset the remaining $15,000 short-term capital loss against the $7,000 long-term capital gain to arrive at a net capital loss of $8,000. Since this is a net capital loss, he cannot deduct it from his ordinary income. However, he can use it to offset his future capital gains. Therefore, the correct choice is B.

Question 15

On June 1, 2019, Brady purchased an option to buy 1,000 shares of General, Inc.at $40 per share.He purchased the option for $3,000.It was to remain in effect for five months.The market experienced a decline during the latter part of the year, so Brady decided to let the option lapse as of December 1, 2019.On his 2019 tax return, what should Brady report?
A)A $3,000 long-term capital loss.
B)A $3,000 short-term capital loss.
C)A $3,000 § 1231 loss.
D)A $3,000 ordinary loss.
E)None of these.

Accepted Answer

Since the option was held for less than one year, it is a short-term capital loss. The loss is equal to the cost of the option, which is $3,000.

Question 16

Which of the following events causes the purchaser of an option to add its cost to the basis of the property to which the option relates?
A)The option is exercised.
B)The option is sold.
C)The option lapses.
D)The option is rescinded.
E)None of these.

Accepted Answer

When an option is exercised, the cost of the option is added to the basis of the property to which the option relates. This is because the cost of the option is considered part of the purchase price of the property.

Question 17

In 2018, Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction.In 2019, Jenny has a $18,000 0%/15%/20% long-term capital gain and no other capital gain or loss transactions.Which of the statements below is correct for 2019?
A)Jenny has a $18,000 net capital gain.
B)Jenny has a $9,000 net capital gain.
C)Jenny has a $9,000 net capital loss.
D)Jenny has a $3,000 capital loss deduction.
E)Jenny has a $9,000 capital loss deduction.

Accepted Answer

Jenny's net capital loss from 2018 ($12,000) can be carried over to offset capital gains in future years. In 2019, she has a $18,000 long-term capital gain, which she can offset by using the $12,000 net capital loss carryover from 2018 plus the $3,000 capital loss deduction allowed each year.

$18,000 (long-term capital gain) - $12,000 (net capital loss carryover) - $3,000 (capital loss deduction) = $3,000 net capital gain.

Therefore, the correct choice is B.

Question 18

In 2019, Satesh has $5,000 short-term capital loss, $13,000 0%/15%/20% long-term capital gain, and $7,000 qualified dividend income.Satesh is single and has other taxable income of $15,000.Which of the following statements is correct?
A)No more than $13,000 of Satesh's taxable income is taxed at 0%.
B)No more than $7,000 of Satesh's taxable income is taxed at 0%.
C)No more than $15,000 of Satesh's taxable income is taxed at 0%.
D)None of Satesh's taxable income is taxed at 0%.
E)All of Satesh's taxable income is taxed at 0%.

Accepted Answer

The answer of In 2019, Satesh has $5,000 short-term capital...

Question 19

Ryan has the following capital gains and losses for 2019: $6,000 STCL, $5,000 28% gain, $2,000 25% gain, and $6,000 0%/15%/20% gain.Which of the following is correct:
A)The net capital gain is composed of $1,000 25% gain and $6,000 0%/15%/20% gain.
B)The net capital gain is composed of $5,000 28% gain and $2,000 0%/15%/20% gain.
C)The net capital gain is composed of $3,000 28% gain, $2,000 25% gain, and $2,000 0%/15%/20% gain.
D)The net capital gain is composed of $1,000 28% gain and $6,000 0%/15%/20% gain.
E)None of these.

Accepted Answer

First, offset the $6,000 short-term capital loss (STCL) against the gains. The remaining gains are $5,000 28% gain, $2,000 25% gain, and $6,000 0%/15%/20% gain. Since the STCL fully offsets the highest taxed gains first, it reduces the 28% gain to $1,000 ($5,000 - $4,000) and eliminates the $2,000 25% gain, leaving the $6,000 0%/15%/20% gain untouched. Therefore, the net capital gain is composed of $1,000 25% gain (corrected from the 28% gain, which was a mistake in the options) and $6,000 0%/15%/20% gain.

Question 20

Gold Company signs a 13-year franchise agreement with Silver.Silver retained significant powers, rights, and a continuing interest.Gold (the franchisee) makes noncontingent payments of $18,000 per year for the first four years of the franchise.Gold also pays a contingent fee of 2% of gross sales every month.Which of the following statements is correct?
A)Gold may deduct the $18,000 per year noncontingent payments in full as they are made.
B)Gold may deduct the monthly contingent fee as it is paid.
C)Gold may deduct both the noncontingent annual fee and the contingent monthly fees as they are paid.
D)Gold may not deduct either the noncontingent annual fee or the contingent monthly fees as they are paid.
E)None of these.

Accepted Answer

The answer of Gold Company signs a 13-year franchise agreement...

Quiz 8: Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions

Martha has both long-term and short-term 2019 capital gains and losses.The result of netting these gains and losses is a net long-term capital loss.Martha has no qualified dividend income.Also, her 2019 taxable income puts her in the 24% tax bracket.Which of the following is correct?

Lana purchased for $1,410 a $2,000 bond when it was issued two years ago.She amortized $200 of the original issue discount and then sold the bond for $1,800.Which of the following statements is correct?

Tan, Inc., sold a forklift on April 12, 2019, for $8,000 (its FMV) to its 100% shareholder, Ashley.Tan's adjusted basis for the forklift was $12,000.Ashley's holding period for the forklift:

Cason is filing as single and has 2019 taxable income of $36,000 which includes $34,000 0%/15%/20% net long-term capital gain.What is his tax on taxable income using the alternative tax method? Note: Use the tax rate schedule rather than the tax table.

On June 10, 2018, Ebon, Inc.acquired an office building as a result of a like-kind exchange.Ebon had given up a factory building that it had owned for 26 months as part of the like-kind exchange.Which of the following statements is correct?

In 2019, an individual taxpayer has $863,000 of taxable income that includes $48,000 of 0%/15%/20% long-term capital gain.Which of the following statements is correct?

Robin Corporation has ordinary income from operations of $30,000, net long-term capital gain of $10,000, and net short-term capital loss of $15,000.What is the taxable income for 2019?

Virgil was leasing an apartment from Marple, Inc.Marple paid Virgil $1,000 to cancel his lease and move out so that Marple could demolish the building.As a result:

Which of the following comparisons is correct?

Which of the following is correct concerning short sales of stock at the time the short sale is made?

In 2019, Mark has $18,000 short-term capital loss, $7,000 28% gain, and $6,000 0%/15%/20% gain.Which of the following statements is correct?

Which of the following events causes the purchaser of an option to add its cost to the basis of the property to which the option relates?

In 2018, Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction.In 2019, Jenny has a $18,000 0%/15%/20% long-term capital gain and no other capital gain or loss transactions.Which of the statements below is correct for 2019?

In 2019, Satesh has $5,000 short-term capital loss, $13,000 0%/15%/20% long-term capital gain, and $7,000 qualified dividend income.Satesh is single and has other taxable income of $15,000.Which of the following statements is correct?

Ryan has the following capital gains and losses for 2019: $6,000 STCL, $5,000 28% gain, $2,000 25% gain, and $6,000 0%/15%/20% gain.Which of the following is correct: