Question 1

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
A)7.0%
B)14.0%
C)15.0%
D)27.0%
E)30.0%

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 2

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.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

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

Question 3

Sybil purchased 500 shares of Qualified Small Business Stock (QSB)for $25,000 on March 2,2002.On November 29,2013,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%.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

The $100,000 gain from the sale of QSB stock is eligible for the 100% exclusion, so no tax is paid on that gain. The $20,000 gain from the sale of the other stock is taxed at a 15% rate, resulting in a tax of $3,000. Therefore, the total tax paid on the two stock sales is $3,000.

Question 4

Sally owns 700 shares of Fashion Styles Clothing common stock.Sally purchased the 700 shares as follows:
$$\begin{array} { l c c } 
\text { Purchase Date } & \text { Number of Shares } & \text { Total Cost } \
\text { March } 2010 & 200 & \$ 2,000 \
\text { August } 2010 & 300 & \$ 3,600 \
\text { January } 2011 & 200 & \$ 3,000
\end{array}$$
As of December 29,2013,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 $13 per share,Sally plans to dispose of 400 shares to cover the tuition.Ignoring commissions and transaction costs,what is the optimal tax result of selling 400 shares?
A)$- 0 - gain or loss.
B)$200 long-term capital loss.
C)$100 long-term capital gain.
D)$800 long-term capital loss
E)$800 long-term capital gain

Accepted Answer

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

Question 5

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 $1,000 long-term capital gain?
A)$ -0-
B)$ 50
C)$100
D)$150
E)$250

Accepted Answer

First, we need to calculate Sidney's tax liability without considering the long-term capital gain:
Taxable income = $45,000
Tax liability = $4,847.50 (using 2021 tax brackets and rates for a single filer)
Now, we need to calculate Sidney's tax liability with the long-term capital gain included:
Taxable income = $46,000 ($45,000 + $1,000)
Tax liability = $4,747.50 (using 2021 tax brackets and rates for a single filer)
The difference in tax liability between the two scenarios is $100 ($4,847.50 - $4,747.50), which means Sidney's actual tax savings because of the special treatment of his long-term capital gain is $100. Therefore, the correct answer is C) $100.

Question 6

Rachael purchased 500 shares of Qualified Small Business Stock (QSB)for $900,000 on March 2,2008.On November 29,2013,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 explain(s)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.
A)Statements I and II are correct.
B)Statements II and III are correct.
C)Statements III and IV are correct.
D)Statements I, II, and III are correct.
E)Statements I, II, III, and IV are correct.

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 rate.

Question 7

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.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

Statement II is correct. When a security becomes worthless, the measure of the loss is the adjusted basis of the securities. However, statement I is incorrect because a loss can be deducted in this situation even if a realization has not occurred, as the security is considered to have a zero value. Therefore, only statement II is correct.

Question 8

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.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

The answer of When securities are sold and the securities...

Question 9

Tory sells General Electric stock (owned 10 years)for a $40,000 gain in the current year.In addition,she had a loss of $20,000 on the sale of one acre of land used in her trade or business.The land was purchased five years ago.Tory's net Section 1231 gain (loss)for the current year is:
A)$ - 0 -
B)$ 20,000
C)$ (20,000)
D)$ 40,000

Accepted Answer

Tory had a long-term capital gain of $40,000 from the sale of General Electric stock, but also had a long-term capital loss of $20,000 from the sale of the land used in her trade or business. These transactions both fall under Section 1231 of the tax code, which deals with the sale of business property. To calculate the net Section 1231 gain (loss) for the year, we subtract the losses from the gains. 
$40,000 (gain) - $20,000 (loss) = $20,000 net Section 1231 loss. Therefore, the best choice is C.

Question 10

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.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

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

Question 11

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 $10,000 long-term capital gain on small business stock?
A)$ 700
B)$1,150
C)$1,400
D)$2,100
E)$2,800

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 12

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 $1,000 collectibles gain?
A)$ -0-
B)$ 15
C)$130
D)$150
E)$280

Accepted Answer

The answer of Dwight,a single taxpayer,has taxable income of $75,000...

Question 13

A taxable entity has the following capital gains and losses in 2013:
$\begin{array}{lc}
\text { Short-term capital loss } &\$(22,000) \
\text { Long-term capital gain } &13,000
\end{array}$

I. If the entity is an individual, a $ \$ 7,000 $ deduction is allowed in 2013.
II. If the entity is a corporation, no deduction is allowed in 2013.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

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

Question 14

Tracey sells General Electric stock (owned 10 years)for a $40,000 gain in the current year.In addition,she has a loss of $20,000 on the sale of one acre of land used in her trade or business.The land was purchased five years ago.Tracey's net capital gain (loss)for the current year is:
A)$ (20,000)
B)$ - 0 -
C)$ 20,000
D)$ 40,000

Accepted Answer

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

Question 15

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.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Accepted Answer

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

Question 16

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
A)0%
B)7.0%
C)14.0%
D)15.0%
E)28.0%

Accepted Answer

The answer of The exclusion of a percentage of the...

Question 17

Victor bought 100 shares of stock of Wabash Manufacturing Corporation from an unrelated individual paying $1 per share on December 20,2012.On April 17,2013,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?
A)$100 short-term capital loss.
B)$100 long-term capital loss.
C)$100 ordinary loss.
D)No gain or loss until the stock is sold.
E)The amount is $100, but the character is indeterminable from the information given.

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

Which of the following is not a capital asset?
A)Office building used as a rental property by a real estate professional..
B)Antique automobile.
C)Land held for investment.
D)Stock held for investment.

Accepted Answer

The office building used as a rental property by a real estate professional is a capital asset because it is held for investment purposes. The antique automobile, land held for investment, and stock held for investment are all also capital assets.

Question 19

Santana purchased 200 shares of Neffer,Inc.Common Stock on November 13,2012,for $3,400 and paid a $200 commission.On December 28,2012,Santana received a $2 per share cash dividend from Neffer.On June 17,2013,Neffer declares and distributes a 2 for 1 stock split.On August 4,2013,Santana purchased an additional 300 shares of Neffer,Inc.Common Stock for $4,200 plus a $300 commission.On November 22,2013,Santana sells 500 shares of Neffer,Inc.stock for $6,000 and pays a $400 commission on the sale.Santana's gain (loss)on the sale is
A)$ 500 loss
B)$ 500 gain
C)$2,700 loss
D)$2,000 gain
E)$3,600 loss

Accepted Answer

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

Question 20

Tonya purchased 500 shares of Home Depot,Inc.common stock on December 13,2010,at a cost of $3,600.She paid a commission of $150 on the purchase.On February 18,2012,she received 250 shares of Home Depot,Inc.common stock as a tax-free dividend.Tonya sells 600 shares for $3,700 on January 8,2013,and pays a $100 commission on the sale.Tonya's gain (loss)on the sale is characterized as:
A)Long-term capital gain of $600.
B)Long-term capital gain of $500; short-term capital gain of $100.
C)Long-term capital loss of $50.
D)Short-term capital gain of $600.

Accepted Answer

The shares sold were purchased more than one year before the sale, so the gain is long-term. The gain is calculated as the difference between the sale price and the cost basis, which is the original purchase price plus the commission. The cost basis of the shares sold is $3,600 + $150 = $3,750. The sale price is $3,700, so the gain is $3,700 - $3,750 = $50.

Quiz 11: Property Dispositions

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

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?

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.

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.

Tory sells General Electric stock (owned 10 years) for a $40,000 gain in the current year.In addition,she had 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.Tory's net Section 1231 gain (loss) for the current year is:

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?

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:

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.

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

Which of the following is not a capital asset?