Question 1

In general,the basis of property purchased is the cost of the asset including cash,debt obligations,and other property or services included in acquiring the asset.

Accepted Answer

The basis of property purchased includes the cost of the asset, which can include cash, debt obligations, and other property or services included in acquiring the asset.

Question 2

The taxpayer always reports a worthless security as a long-term capital loss in the year the security becomes worthless.

Accepted Answer

The answer of The taxpayer always reports a worthless security...

Question 3

The amount realized from a sale or trade of property is the amount received for the asset minus the basis that will be recognized for tax purposes.

Accepted Answer

The amount realized from a sale or trade of property is the total amount received for the asset without subtracting the basis. The basis is considered separately to determine gain or loss.

Question 4

When a Section 1231 asset is sold,the gain can be either classified as an ordinary or capital gain.

Accepted Answer

When a Section 1231 asset is sold, the gain can be either classified as an ordinary or capital gain depending on the circumstances surrounding the sale.

Question 5

If the taxpayer has capital gain distributions from a mutual fund and no other capital gain transactions for the year,a Schedule D is not required to be prepared.

Accepted Answer

If the taxpayer has only capital gain distributions from a mutual fund and no other capital gain transactions, they do not need to prepare a Schedule D. The mutual fund company will typically provide a Form 1099-DIV, which will provide the necessary information for reporting the capital gain distributions on the taxpayer's tax return.

Question 6

A taxpayer who receives only one form 1099-B from the sales of stock can enter the transaction directly to Schedule D.

Accepted Answer

The answer of A taxpayer who receives only one form...

Question 7

Any Section 1245 gain is recognized as "ordinary" to the extent of the depreciation taken.

Accepted Answer

Section 1245 of the Internal Revenue Code deals with personal property that is subject to depreciation. When a taxpayer sells or disposes of such property, any gain recognized is classified as ordinary income to the extent of the depreciation previously taken on the property. This means that it is taxed at the taxpayer's ordinary income tax rate, rather than at the lower capital gains tax rate.

Question 8

Ordinary gains or losses produced outside the normal course of business relate to the sale of business property held less than one year and do not include the sale of accounts receivable.

Accepted Answer

Ordinary gains or losses produced outside the normal course of business can include the sale of accounts receivable.

Question 9

To figure the gain or loss from the sale of property received as a gift,the donee must know the donor's adjusted basis as well as the FMV at the date of the gift.

Accepted Answer

This is true as the donor's adjusted basis and FMV at the date of the gift are both necessary in determining the gain or loss from the sale of the gifted property.

Question 10

If land were an investment held in a trade or business,the gain or loss would be reported on Schedule D.

Accepted Answer

According to IRS regulations, gains or losses from the sale of investment property held in a trade or business are reported on Schedule D of Form 1040. This includes any land that was held for the purposes of generating income or profit, such as rental properties or real estate development projects.

Question 11

All gains and losses on the sale of property that was held for more than one year is subject to preferential tax rates.

Accepted Answer

The answer of All gains and losses on the sale...

Question 12

All net losses exceeding the $3,000 per year are carried over as long-term losses because they will have occurred more than one year ago.

Accepted Answer

Net losses exceeding $3,000 per year can be carried over to subsequent years, but they retain their original character as either short-term or long-term losses, depending on the nature of the original losses.

Question 13

Capital assets are usually defined by the IRC as any asset used for personal or investment purposes and sometimes are defined by the IRC as what they are not.

Accepted Answer

Capital assets are commonly defined as any asset used for personal or investment purposes, including stocks, bonds, real estate, and personal property. The IRC does sometimes provide a list of assets that are not considered capital assets, such as property used in a business, accounts or notes receivable, and certain publications.

Question 14

The 25% bracket is a special rate that relates to capital gains from Section 1250 property used in a trade or business.

Accepted Answer

The 25% bracket refers to the special tax rate applied to the unrecaptured Section 1250 gain, which is part of the gain realized on the sale of Section 1250 property (real property) that has been depreciated. This rate is distinct from other capital gains rates.

Question 15

The basis of property transferred to a taxpayer from a spouse or former spouse incident to a divorce is the FMV of the property at the date the divorce was final.

Accepted Answer

The basis of property transferred to a taxpayer from a spouse or former spouse incident to a divorce is the carryover basis, not the fair market value (FMV) at the date the divorce was final. This means the recipient assumes the same basis in the property that the transferring spouse had.

Question 16

For sales of Section 1231 business property,long-term gains are taxed at preferential rates while long-term losses are considered ordinary losses and deductible in the year they are incurred.

Accepted Answer

This statement is correct. For sales of Section 1231 business property, long-term gains are taxed at preferential rates, while long-term losses are considered ordinary losses and deductible in the year they are incurred. This treatment provides a tax advantage to taxpayers who have both long-term gains and losses from the sale of their business property.

Question 17

To figure the gain or loss from the sale of property received as a gift,the donor's adjusted basis at the time of the gift is the basis to the donee.

Accepted Answer

The answer of To figure the gain or loss from...

Question 18

If a taxpayer cannot specifically identify which shares of stock were sold,the average cost of all shares held is used as the adjusted basis of the shares that were sold.

Accepted Answer

The answer of If a taxpayer cannot specifically identify which...

Question 19

A taxpayer can deduct a loss on a security when the market price of the stock is less than the basis at the end of the year.

Accepted Answer

A taxpayer can only deduct a loss on a security when it is actually sold for less than its basis, not merely when its market price falls below the basis.

Question 20

Section 1221 assets are any asset used in a trade or business.

Accepted Answer

Section 1221 assets refer specifically to capital assets, which are generally defined as property held by an individual or business outside of their usual course of business. This excludes inventory, certain property used in a trade or business, accounts receivable, and other specific assets that are not held for investment purposes.

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