Question 1

In what order are capital gains subject to the 15%, 25%, and 28% capital gains included in taxable income in the determination of the tax liability?

Accepted Answer

Taxpayers' capital gains that are subject to different rates must be included in the following order in taxable income: 25% asset capital gains are included first, 28% asset capital gains are included second, and 15% asset capital gains are included last.

Question 2

Determine the amount of the capital gain or loss in each of the following transactions and state whether the gain or loss is long-term or short-term.
a. 100 shares of Bilco stock bought for $8,000 on January 22 of year 3 and sold for $10,000 on January 22 of year 4.
b. 20 acres of investment land bought for $8,000 on January 31 of year 3 and sold for $7,000 on February 2 of year 4.
c. 150 shares of Data stock bought for $15,000 on April 1 of year 2 and sold for $17,000 on May 28 of year 4.
-Refer to the information in problem 1.
a. If the taxpayer is a corporation with taxable income of $100,000 before the three property transactions detailed in that information, what is the corporation's total taxable income?
b. If the taxpayer is an individual in the 35 percent tax bracket before the three property transactions, what tax rate(s) will apply to the sale of gain assets?

Accepted Answer

a. $2,000 LTCG - $1,000 LTCL = $1,000 LTCG; $100,000 + $1,000 LTCG + $2,000 STCG = $103,000 total taxable income
b. $1,000 LTCG taxed at 15%; $2,000 STCG taxed at 35%

Question 3

Bill is in the 35 percent tax bracket in 2011 During the year, he sold some stock held for 11 months at a $500 gain, gold coins held for two years at a $1,900 loss, antique toys held three years at a $2,200 gain, bonds held for two years for $400 gain, and some investment land held six months at a $300 loss. Determine Bill's net capital gain or loss and detail how it will be treated for tax purposes.

Accepted Answer

$2,200 LTCG + $400 LTCG - $1,900 LTCL = $700 LTCG; $500 STCG - $300 STCL = $200 STCG; $700 LTCG: $300 taxed at 28%; $400 taxed at 15%; $200 STCG taxed at 35%.

Question 4

Determine the amount and type of capital loss deduction and carryover to the next year in each case below for Gina, a single taxpayer.
 $\begin{array}{llll}&\text { STCG } & \text { STCL } & \text { LTCG } & \text { LTCL }\
a.&0 & \$ 2,600 & 0 & \$ 2,800 \
b.&\$ 500 & \$ 300 & \$ 200 & \$ 2,300 \
c.&0 & \$ 3,500 & \$ 1,800 & \$ 1,600
\end{array}$

Accepted Answer

The answer of Determine the amount and type of capital...

Question 5

Carlos provides you with the following information for years 1 and 2, exclusive of capital loss carryovers:
 $\begin{array}{lllll}&\text { STCG } & \text { STCL } & \text { LTCG } & \text { LTCL }\
\text { Year 1 } & 0 & \$ 2,400 & \$ 400 & \$ 3,500 \
\text { Year 2 } & \$ 500 & \$ 700 & \$ 900 & \$ 1,000
\end{array}$ 
Determine the amount and type of capital loss deduction each year, if any, and the carryover to the following year.

Accepted Answer

The answer of Carlos provides you with the following information...

Question 6

A taxpayer has the following gains and losses from property transactions completed in 2011. What is the effect on the taxpayer's taxable income and income tax if the taxpayer is (a) an individual or (b) a corporation?
 $$\begin{array} { l r } 
\text { Long-term capital gain } & \$ 21,000 \
\text { Section 1231 gain } & 10,000 \
\text { Section 1231 loss } & 12,000 \
\text { Short-term capital gain } & 3,000 \
\text { Short-term capital loss } & 18,000
\end{array}$$

Accepted Answer

The answer of A taxpayer has the following gains and...

Question 7

Taxpayer B has the following gains and losses from property transactions. What is the effect on the taxpayer's taxable income if Taxpayer B is (a) a corporation; (b) an individual?
 $$\begin{array} { l r } 
\text { Long-term capital gain } & \$ 4,000 \
\text { Long-term capital loss } & 7,000 \
\text { Section 1231 gain } & 10,000 \
\text { Section 1231 loss } & 6,000 \
\text { Short-term capital gain } & 3,000 \
\text { Short-term capital loss } & 6,000
\end{array}$$

Accepted Answer

The answer of Taxpayer B has the following gains and...

Question 8

Craig and Sally, a married couple in the 35 percent tax bracket who file joint returns, purchased a home on December 1, 2009 for $600,000. They made $100,000 of improvements during the time they owned the home. They sold the home on May 31, 2011 after Craig accepted a job in another state netting $1,250,000 after expenses on the sale. What are the tax consequences of this sale?

Accepted Answer

The answer of Craig and Sally, a married couple in...

Question 9

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250.
-Gain on the sale of stock by an individual.
A)capital
B)Section 1231
C)ordinary
D)Section 1245
E)Section 1250

Accepted Answer

The gain on the sale of stock by an individual is considered a capital gain, as stocks are capital assets and gains or losses from their sale are treated as capital gains or losses for tax purposes.

Question 10

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250.
-Gain on the sale of a building used for 15 years by a corporation.
A)capital
B)Section 1232
C)ordinary
D)Section 1246
E)Section 1251

Accepted Answer

The answer of Identify the type(s) of gain or loss...

Question 11

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250.
-Gain on the sale of a machine used by a business for four years sold at a price less than its original cost.
A)capital
B)Section 1233
C)ordinary
D)Section 1247
E)Section 1252

Accepted Answer

The answer of Identify the type(s) of gain or loss...

Question 12

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250.
-Gain on the sale of a personal residence.
A)capital
B)Section 1234
C)ordinary
D)Section 1248
E)Section 1253

Accepted Answer

The gain on the sale of a personal residence is typically treated as a capital gain for tax purposes. This is because personal residences are considered capital assets, and gains from their sale are subject to capital gains tax rates, subject to certain exclusions and conditions.

Question 13

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250.
-Gain on the sale of inventory.
A)capital
B)Section 1235
C)ordinary
D)Section 1249
E)Section 1254

Accepted Answer

Gain on the sale of inventory is considered ordinary income because inventory is held primarily for sale to customers in the ordinary course of business, and thus any gain from its sale is treated as ordinary income, not capital gain.

Question 14

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250.
-Loss on the sale of equipment used in a business for three years.
A)capital
B)Section 1236
C)ordinary
D)Section 1250
E)Section 1255

Accepted Answer

The answer of Identify the type(s) of gain or loss...

Question 15

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250.
-Loss on the sale of municipal bonds by a corporation.
A)capital
B)Section 1237
C)ordinary
D)Section 1251
E)Section 1256

Accepted Answer

The loss on the sale of municipal bonds by a corporation is considered a capital loss because municipal bonds are capital assets, and losses from their sale are treated as capital losses under the tax code.

Question 16

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250.
-Gain on the sale of a machine used by a business for 11 months.
A)capital
B)Section 1238
C)ordinary
D)Section 1252
E)Section 1257

Accepted Answer

The gain on the sale of a machine used in a business for less than one year (11 months) is treated as ordinary income because it is considered a short-term capital asset, and any gain or loss from its sale is classified as ordinary, not capital.

Question 17

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250.
-Loss on the factoring of receivables.
A)capital
B)Section 1239
C)ordinary
D)Section 1253
E)Section 1258

Accepted Answer

Loss on the factoring of receivables is considered ordinary loss because it arises from the normal operations of a business, specifically from the sale or transfer of accounts receivable, which is a common business activity.

Question 18

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250.
-Gain on sale of a building used by a partnership for eight years in excess of its original cost.
A)capital
B)Section 1240
C)ordinary
D)Section 1254
E)Section 1259

Accepted Answer

The answer of Identify the type(s) of gain or loss...

Question 19

Wesley sold a piece of property for $30,000 cash paying a $3,000 sales commission. The buyer assumed Wesley's $13,000 mortgage on the property. Wesley had purchased the property for $15,000 and had invested an additional $6,000 in it. What is Wesley's realized gain on the sale?
A) $6,000
B) $9,000
C) $19,000
D) $22,000

Accepted Answer

($30,000 - $3,000 + $13,000) - $21,000 = $19,000 realized gain

Question 20

During the current year, Mrs. Mayhew receives a typewriter as a gift from her son. The typewriter has a current fair market value of $150 and cost her son $450. He took $250 of depreciation deductions while it was used in his business. Mrs. Mayhew uses the typewriter for several years and then sells it for $125. What is the amount and type of gain or loss that Mrs. Mayhew recognizes on the sale?
A) $25 personal loss
B) $75 personal loss
C) $25 Section 1231 loss
D) $50 of Section 1231 gain
E) None of the above

Accepted Answer

$450 - $250 = $200 basis; $150 basis for loss - $125 received = $25 loss on personal use property

Quiz 7: Property Dispositions

In what order are capital gains subject to the 15%, 25%, and 28% capital gains included in taxable income in the determination of the tax liability?

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250. -Gain on the sale of stock by an individual.

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250. -Gain on the sale of a building used for 15 years by a corporation.

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250. -Gain on the sale of a machine used by a business for four years sold at a price less than its original cost.

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250. -Gain on the sale of a personal residence.

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250. -Gain on the sale of inventory.

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250. -Loss on the sale of equipment used in a business for three years.

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250. -Loss on the sale of municipal bonds by a corporation.

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250. -Gain on the sale of a machine used by a business for 11 months.

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250. -Loss on the factoring of receivables.

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 or Section 1250. -Gain on sale of a building used by a partnership for eight years in excess of its original cost.

Wesley sold a piece of property for $30,000 cash paying a $3,000 sales commission. The buyer assumed Wesley's $13,000 mortgage on the property. Wesley had purchased the property for $15,000 and had invested an additional $6,000 in it. What is Wesley's realized gain on the sale?