Question 1

An individual taxpayer with 2018 net short-term capital loss of $5,000 generally can deduct up to $3,000 for AGI and carry the balance forward to 2019.

Accepted Answer

This statement is correct according to IRS rules on capital loss deductions for individual taxpayers. They can deduct up to $3,000 for AGI and carry the remaining loss forward to future tax years.

Question 2

Section 1231 property generally does not include artistic compositions.

Accepted Answer

Section 1231 property typically includes depreciable property and real property (like buildings and equipment) used in a trade or business and held for more than one year. Artistic compositions are not included in this category as they are considered intellectual property, not depreciable business property.

Question 3

If there is a net § 1231 loss, it is treated as an ordinary loss.

Accepted Answer

According to IRS regulations, if there is a net § 1231 loss, it is treated as an ordinary loss. This means that it can be fully deducted against ordinary income in the current tax year or carried back or forward to offset ordinary income in other years.

Question 4

Short-term capital losses are netted against long-term capital gains and long-term capital losses are netted against short-term capital gains.

Accepted Answer

The answer of Short-term capital losses are netted against long-term...

Question 5

Section 1231 property generally includes certain purchased intangible assets (such as patents and goodwill) that are eligible for amortization and held for more than one year.

Accepted Answer

Section 1231 property includes certain purchased intangible assets that are eligible for amortization and held for more than one year, such as patents and goodwill.

Question 6

There can be three subgroups within the long-term capital gain or loss group - 0%/15%/20%, 25%, and 28%.

Accepted Answer

This is true as the tax rates for long-term capital gains or losses can fall into three different brackets - 0%/15%/20%, 25%, and 28%. The specific bracket depends on the taxpayer's income level and other factors.

Question 7

Section 1231 property includes nonpersonal use property where casualty gains exceed casualty losses for the taxable year.

Accepted Answer

Section 1231 property includes nonpersonal use property where casualty gains exceed casualty losses for the taxable year, among other types of property such as depreciable and real property used in a trade or business.

Question 8

Rental use depreciable machinery held more than 12 months is an example of a § 1231 asset.

Accepted Answer

Rental use depreciable machinery held more than 12 months is a type of tangible property used in a trade or business and held for more than one year that can be classified as a § 1231 asset.

Question 9

Section 1231 applies to the sale or exchange of business properties, but not to personal use activity casualties.

Accepted Answer

Section 1231 of the Internal Revenue Code only applies to sales or exchanges of business properties, such as rental properties or business equipment. It does not apply to losses from personal use property, such as a personal vehicle or a primary residence, nor does it apply to losses from casualty events for personal use property.

Question 10

Short-term capital gain is eligible for a special tax rate only when it exceeds long-term capital gain.

Accepted Answer

Short-term capital gain is actually taxed at a higher rate than long-term capital gain, regardless of the amount of gain. So, short-term capital gain is not eligible for a special tax rate when it exceeds long-term capital gain.

Question 11

A corporation has a $50,000 short-term capital loss for the year. The corporation has $1,200,000 of taxable income from other sources. The taxable income for the year is $1,200,000.

Accepted Answer

The $50,000 short-term capital loss can be used to offset the taxable income of $1,200,000, resulting in a taxable income of $1,150,000.

Question 12

The "tax status" of an asset refers to whether the asset is a capital asset, a § 1231 asset, or an ordinary asset.

Accepted Answer

The tax status of an asset can refer to whether it is a capital asset, § 1231 asset, or ordinary asset.

Question 13

Section 1231 property generally does not include accounts receivables arising in the ordinary course of business.

Accepted Answer

Section 1231 property includes tangible and intangible property used in a business or held for investment purposes, but it does not generally include accounts receivables that arise in the ordinary course of business. Accounts receivables are considered ordinary income and are not eligible for favorable Section 1231 tax treatment.

Question 14

A sheep must be held more than 18 months to qualify as a § 1231 asset.

Accepted Answer

A sheep held for breeding purposes is considered a § 1231 asset if it is held for more than 12 months, not 18 months.

Question 15

The effect of § 1244 may be to convert a capital loss into an ordinary loss deductible for adjusted gross income.

Accepted Answer

Section 1244 of the Internal Revenue Code allows individual taxpayers to treat losses incurred by small business corporation stock as ordinary losses rather than capital losses. This means that the losses can be deducted from ordinary income, which may result in a larger tax benefit than if they were treated as capital losses.

Question 16

An individual business taxpayer owns land on which he grows trees for logging. The land has been held more than 10 years and the trees growing on the land were planted eight years ago. Normally, the timber would be inventory for this taxpayer, but the tax law allows the taxpayer to elect to treat cutting the timber as the disposition of a § 1231 asset.

Accepted Answer

The taxpayer can elect to treat cutting the timber as the disposition of a § 1231 asset because the land has been held for more than 10 years. This election allows the taxpayer to treat the gain or loss from the timber sale as long-term capital gain or loss, which may be more favorable tax treatment.

Question 17

All collectibles short-term gain is subject to a potential alternative tax rate of 28%.

Accepted Answer

Short-term gains on collectibles are taxed at ordinary income tax rates, not the special 28% rate, which applies to long-term gains on collectibles.

Question 18

A net short-term capital loss first offsets any 28% net long-term capital gain before it offsets either 25% net long- term capital gain or 0%/15%/20% net long-term capital gain.

Accepted Answer

This statement is true. Net short-term capital losses are first applied to offset any net long-term capital gains that are taxed at the highest rate of 28%. Only after that, they are applied to offset any net long-term capital gains that are taxed at 25%, 15%, or 0% depending on the taxpayer's income and filing status.

Question 19

Tom has owned 40 shares of Orange Corporation stock for five years. He sells the stock short for a total of $1,100.
One month later, he closes the short sale by purchasing and delivering 40 shares of Orange Corporation stock for a total of $600. Tom has a $500 short-term capital gain.

Accepted Answer

The answer of Tom has owned 40 shares of Orange...

Question 20

In order to be long-term, the holding period must include at least parts of two tax years.

Accepted Answer

According to the IRS, in order for an investment to be considered long-term, the holding period must be more than one year and must include at least parts of two tax years.

Quiz 14: Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions