Question 1

In 2008,Savannah purchased 200 shares of Hi-Style stock as an investment.The stock cost $17,000.In 2017 when the fair market value was $19,000,Savannah gave the stock to her daughter,Daniele.If no gift tax is paid and Daniele sells the stock for $20,000,she will recognize:

Accepted Answer

The answer of In 2008,Savannah purchased 200 shares of Hi-Style...

Question 2

Francisco sells a parcel of land for $100,000 cash and the buyer also assumes Francisco's liability of $10,000.The basis of his land is $70,000.What is the gain or loss realized on the sale?

Accepted Answer

The answer of Francisco sells a parcel of land for...

Question 3

The following is true if land is sold except:

Accepted Answer

The answer of The following is true if land is...

Question 4

Shanstella bought a 4-unit apartment building in July 2008 for $360,000 and sold it for $480,000 in 2017.There was $96,541 of accumulated straight-line depreciation on the apartment building.Assuming that Shanstella is in the 33% tax bracket,how much of her gain is taxed at 25%?

Accepted Answer

The gain taxed at 25% is the amount of accumulated depreciation, which is $96,541. This is because the IRS requires depreciation recapture on the sale of a depreciable real estate, which is taxed at a maximum rate of 25%.

Question 5

Dan sold 135 shares (assume 100 are long-term)of Elite Mutual Fund on July 26,2017 for $95 per share and received a 1099-B (box 3 was not checked for basis)to record the sale of the shares.Dan's investment portfolio includes the following purchases of Elite Mutual Fund: $\begin{array}{lr}
\text { May } 20,2014 & 50 \text { shares at } \$ 100 \text { per share } \
\text { March } 29,2015 & 50 \text { shares at } \$ 95 \text { per share } \
\text { August } 21,2016 & 50 \text { shares at } \$ 85 \text { per share } \
\text { February } 22,2017 & 100 \text { shares at } \$ 75 \text { per share }
\end{array}$ In 2017,Dan will recognize:

Accepted Answer

Dan will recognize a $315 short-term gain from selling the shares bought in February 2017 for $75 each and sold for $95 each, resulting in a $20 gain per share for 100 shares. The long-term gain of $900 comes from selling the remaining 35 shares (out of the 135 total shares sold) from the long-term holdings, calculated based on the specific shares' purchase prices and the sale price of $95 per share.

Question 6

Sylvio purchased an apartment building as an investment in January 2011 for $383,500 and sold it for $475,000 in 2017.He reported $68,436 of allowed accumulated straight-line depreciation.If Sylvio is in the highest tax bracket for ordinary income,how much of his gain qualifies for preferential tax treatment?

Accepted Answer

The gain qualifying for preferential tax treatment is the difference between the selling price and the adjusted basis, which is the purchase price minus accumulated depreciation. The adjusted basis is $383,500 - $68,436 = $315,064. The selling price is $475,000, so the total gain is $475,000 - $315,064 = $159,936. However, the part of the gain equal to the accumulated depreciation ($68,436) is taxed as ordinary income (unrecaptured Section 1250 gain), and the remaining gain ($159,936 - $68,436 = $91,500) qualifies for preferential tax treatment (long-term capital gains).

Question 7

Diane gifted 100 shares of Runners Link common stock with a FMV of $8,000 to her brother,Sean.The stock originally cost Diane $11,000.Sean later sells the stock on the open market for $9,000.Sean recognizes:

Accepted Answer

When a gift is made, the recipient's basis for determining gain is the donor's original cost ($11,000), and for determining loss, it's the lower of the donor's cost or the FMV at the time of the gift ($8,000). Since Sean sold the stock for $9,000, which is between the FMV and the original cost, he recognizes no gain or loss.

Question 8

Josephine gave her son,Shane 700 shares of Creative Marketing Inc. ,common stock on May 26,2016.Josephine originally paid $9,000 for the stock on April 15,2016.At the date of the gift,the fair market value of the stock was $8,500.If no gift tax is paid and Shane sells the stock for $5,500 on May 26,2017,he will recognize:

Accepted Answer

BShane will recognize a loss because the selling price ($5,500) is less than both the original cost basis ($9,000) and the fair market value at the time of the gift ($8,500). The nature of the loss (short-term or long-term) depends on the holding period. Since the stock was held for more than a year from the original purchase date by Josephine (April 15, 2016) to the sale date by Shane (May 26, 2017), the loss can be considered long-term. However, for tax purposes, the determination of short-term or long-term depends on specific IRS rules regarding gifts and their basis for loss calculation. In this scenario, both options are presented because the specific tax treatment can vary based on additional details not provided in the question.

Question 9

A taxpayer purchased land in 2015 for $26,000 and sold it in 2017 for $31,000 cash.The buyer also assumed the remaining mortgage of $13,000.What is the amount recognized on the sale of the land?

Accepted Answer

The amount recognized on the sale is the difference between the selling price and the purchase price. The selling price includes both the cash received ($31,000) and the mortgage assumed by the buyer ($13,000), totaling $44,000. The purchase price was $26,000. Therefore, the gain recognized is $44,000 - $26,000 = $18,000.

Question 10

Jake purchased a $300,000 earthmover for his business.He sold the earthmover for $245,000 after taking $210,000 of depreciation.What is the nature and amount of the gain or loss on the sale?

Accepted Answer

The gain on the sale is calculated as the selling price ($245,000) minus the adjusted basis (original cost $300,000 minus depreciation $210,000 = $90,000 adjusted basis), which equals $155,000. Since the asset is depreciable property used in a business and the gain is due to depreciation recapture, it is classified as Section 1245 ordinary income.

Question 11

On May 1,2016,Kelalani purchased land for $88,000 for use in her business.She sold it on May 1,2017,for $82,000.If there are no other sales of business or trade property,how is this loss treated for tax purposes on Kelalani's return?

Accepted Answer

The loss from the sale of business property held for less than a year is treated as an ordinary loss.

Question 12

Which of the following is Section 1231 property?

Accepted Answer

Section 1231 property includes depreciable and real property, such as a building used in a trade or business, held for more than one year. Inventory and accounts receivable are not Section 1231 property. Copyright owned by the author is considered an intangible asset, and therefore, it is not Section 1231 property.

Question 13

Elandra purchased 500 shares in Prompt Messenger Services for $12,000 on November 21,2016.The company went bankrupt on June 12,2017,with no hope of recovery for the shareholders.On what date is the stock deemed to be worthless and what is the nature of the loss?

Accepted Answer

The stock is deemed worthless on December 31, 2017, and since it was held for more than a year, it is considered a long-term loss.

Question 14

Kwon-Lee sold 200 shares held in FNP Mutual Fund in 2017 for $22,500 and received a 1099-B to record the sale of the shares.Kwon-Lee's investment portfolio includes the following purchases of FNP Mutual Fund stock: $\begin{array}{rr}
2005 & 100 \text { shares at } \$ 100 \text { per share } \
2009 & 50 \text { shares at } \$ 110 \text { per share } \
2013 & 125 \text { shares at } \$ 130 \text { per share } \
2013 & 75 \text { shares at } \$ 125 \text { per share }
\end{array}$ Assuming Kwon-Lee uses the single category average cost method,he will recognize

Accepted Answer

The average cost per share is calculated as the total cost of all shares divided by the total number of shares: $(100 \times 100 + 50 \times 110 + 125 \times 130 + 75 \times 125) / 350 = \$118.57$. The cost of 200 shares is $200 \times 118.57 = \$23,714$. The sale was for $22,500, resulting in a loss of $1,214, rounded to $1,000 loss.

Question 15

Keisha sold 200 shares of Chic-Chic stock in 2017 for $22,500 and received a 1099-B to record the sale of the shares.Keisha's investment portfolio includes the following purchases of Chic-Chic's stock: $\begin{array}{rr}
2008 & 100 \text { shares at } \$ 100 \text { per share } \
2009 & 50 \text { shares at } \$ 110 \text { per share } \
2010 & 125 \text { shares at } \$ 130 \text { per share } \
2013 & 75 \text { shares at } \$ 125 \text { per share }
\end{array}$ Assuming Keisha does not identify which shares she sold,she will recognize

Accepted Answer

The answer of Keisha sold 200 shares of Chic-Chic stock...

Question 16

Which of the following statements is incorrect regarding the gain or loss from the sale of property received as a gift?

Accepted Answer

If the FMV is equal to or more than the donor's adjusted basis, the basis for any gain or loss on a sale is the donor's adjusted basis. However, if the FMV is less than the donor's adjusted basis at the time of the gift, the basis for figuring the gain is the donor's basis and the basis for figuring the loss is the FMV of the asset. Therefore, statement B is incorrect.

Question 17

In 2014,Niveen purchased land for $88,000 for use in her landscape business.She sold it in 2017 for $97,500.If Niveen has no other sales of business or trade property,how will this gain be taxed?

Accepted Answer

Since Niveen held the land for more than a year before selling it, the gain is considered a long-term capital gain. Therefore, the gain is taxed at the long-term capital gains tax rate, which is generally lower than the ordinary income tax rate.

Question 18

The gain or loss on the sale of property held as an investment is recorded on which one of the following forms or schedules?

Accepted Answer

Schedule D is used to report gains or losses from sales of capital assets held for personal use or investment purposes. Form 4797 is used to report gains or losses from the sale of business property, including assets used in a trade or business by a sole proprietor. Therefore, choice A and D are incorrect. Choice B is incorrect because it only applies to assets used in a trade or business, not those held for investment purposes. So, the best choice is C.

Question 19

Anike received property as part of an inheritance from her father who passed away on March 10,2017.Her father purchased the property on July 3,2016,for $156,000.Anike sold the property on June 30,2017,for $168,000.At the date of his death the property had a FMV of $154,000.What gain,if any,will Anike pick up on her return for 2017?

Accepted Answer

Anike's basis in the inherited property is its fair market value at the date of her father's death, which is $154,000. Since Anike sold the property on June 30, 2017, which is less than one year after the date of inheritance, the gain is classified as short-term. Anike's realized gain is $168,000 - $154,000 = $14,000. Therefore, Anike will have a $14,000 long-term gain to report on her tax return for 2017.

Question 20

Joe received a parcel of land as a gift from his sister,Lisa,in 2012.At the time of the gift,the land had a FMV of $20,000.Lisa purchased the land in 2008 for $23,000.If Joe sells the land in 2017 for $32,450,he will report a

Accepted Answer

When Joe sells the land, he will report a capital gain. To calculate the gain, we need to determine Joe's basis in the land, which is the amount Lisa originally paid for it: $23,000. When Joe sells the land for $32,450, he will realize a gain of $9,450 ($32,450 - $23,000). Since Joe has held the land for more than one year, the gain will be treated as a long-term capital gain. Therefore, the correct answer is option B: $9,450 capital gain.

Quiz 7: Capital Gains and Other Sales of Property Schedule D and Form 4797