Question 1

Which of the following comparisons is correct?
A) Corporations may carryback capital losses? individuals may not.
B) Both corporation and individual long-term capital losses carryover as short-term capital losses.
C) Corporations may carryforward capital losses indefinitely? individuals may only carryforward capital losses for five years.
D) Both corporations and individuals may use an alternative tax rate on net capital gains.
E) None of the above.

Accepted Answer

Corporations can carry back capital losses to offset capital gains in the previous three years, while individuals cannot carry back capital losses.

Question 2

Martha has both long-term and short-term 2018 capital gains and losses. The result of netting these gains and losses is a net long-term capital loss. Martha has no qualified dividend income. Also, Martha's 2018 taxable income puts her in the 24% tax bracket. Which of the following is correct?
A) Martha will use Parts I, II, and III of 2018 Form 1040 Schedule D.
B) Martha will not benefit from the special treatment for long-term capital gains.
C) Martha will have a capital loss deduction.
D) All of the above.
E) None of the above.

Accepted Answer

Martha will use Parts I, II, and III of Schedule D to report her capital gains and losses. She will not benefit from the special treatment for long-term capital gains because she has a net long-term capital loss. She can deduct up to $3,000 of her capital loss against other income, resulting in a capital loss deduction.

Question 3

Thoren has the following items for the year: $4,000 of short-term capital gain, $5,000 of 0%/15%/20% long-term capital gain, and $1,500 of 28% capital loss. Which of the following is correct?
A) The $1,500 loss will first be offset by the $4,000 short-term gain.
B) The $1,500 loss will first be offset by the $5,000 long-term gain.
C) The $4,000 short-term gain will first be offset by the $5,000 long-term gain.
D) The taxpayer will have a net short-term capital loss.
E) None of the above.

Accepted Answer

Capital losses are first offset against capital gains of the same type. Therefore, the $1,500 capital loss will be applied against the $5,000 long-term capital gain. This will leave $3,500 of long-term capital gain. The short-term capital gain of $4,000 will be taxed at the taxpayer's marginal tax rate, and any remaining long-term capital gain of $3,500 will be taxed at the appropriate long-term capital gains tax rate.

Question 4

In 2018, an individual taxpayer has $863,000 of taxable income that includes $48,000 of 0%/15%/20% long-term capital gain. Which of the following statements is correct?
A) All of the LTCG will be taxed at 0%.
B) All of the LTCG will be taxed at 15%.
C) All of the LTCG will be taxed at 20%.
D) Some of the LTCG will be taxed at 15% and some at 20%.
E) None of the above.

Accepted Answer

The answer of In 2018, an individual taxpayer has $863,000...

Question 5

Sara is filing as head of household and has 2018 taxable income of $57,000 which includes $3,000 of net long-tem capital gain. The net long-term capital gain is made up of $1,000 25% gain and $2,000 0%/15%/20% gain. What is the tax on her taxable income using the alternative tax method? Note: Use the tax rate schedule rather than the tax table.
A) $0
B) $7,208.
C) $7,088.
D) $6,948.
E) None of the above

Accepted Answer

The alternative tax for net capital gain is $2,000 x 20% = $400. The regular tax on the remaining $54,000 of taxable income is $7,088. The total tax is $400 + $7,088 = $7,488.

Question 6

In 2018, Satesh has $5,000 short-term capital loss, $13,000 0%/15%/20% long-term capital gain, and $7,000 qualified dividend income. Satesh is single and has other taxable income of $15,000. Which of the following statements is correct?
A) No more than $13,000 of Satesh's taxable income is taxed at 0%.
B) No more than $7,000 of Satesh's taxable income is taxed at 0%.
C) No more than $15,000 of Satesh's taxable income is taxed at 0%.
D) None of Satesh's taxable income is taxed at 0%.
E) All of Satesh's taxable income is taxed at 0%.

Accepted Answer

The answer of In 2018, Satesh has $5,000 short-term capital...

Question 7

Jillian, a single taxpayer, has a net long-term capital gain for the year and it is all made up of 25% long-term capital gain. She has positive taxable income for the year. Which of the following is not a possible tax rate that could be applied in taxing this gain as part of her taxable income?
A) 0%.
B) 15%.
C) 20%.
D) 25%.
E) a. and c.

Accepted Answer

The 25% long-term capital gain rate applies to certain types of gains, such as unrecaptured Section 1250 gain, and is not subject to the 0% or 20% rates.

Question 8

Emilio owns vacant land he is holding for investment. Two years ago he granted an option to purchase the land. The option grantee paid $25,000 for the option. This year the option expired unexercised. As a result, Emilio has:
A) $25,000 long-term capital gain.
B) $25,000 short-term capital gain.
C) $25,000 ordinary gain.
D) No recognized gain or loss.
E) None of the above.

Accepted Answer

The answer of Emilio owns vacant land he is holding...

Question 9

Which of the following is not a "tax status" for an asset?
A) Capital loss asset.
B) Capital asset.
C) Section 1231 asset.
D) Ordinary asset.
E) All of the above.

Accepted Answer

A "capital loss asset" is not a recognized tax status for an asset. The other options are recognized tax statuses for assets under U.S. tax law.

Question 10

In 2017, Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction. In 2018, Jenny has a $18,000 0%/15%/20% long-term capital gain and no other capital gain or loss transactions. Which of the statements below is correct for 2018?
A) Jenny has a $18,000 net capital gain.
B) Jenny has a $9,000 net capital gain.
C) Jenny has a $9,000 net capital loss.
D) Jenny has a $3,000 capital loss deduction.
E) Jenny has a $9,000 capital loss deduction.

Accepted Answer

Jenny can carry forward the remaining $9,000 short-term capital loss from 2017 to offset her 2018 long-term capital gain, resulting in a $9,000 net capital gain for 2018.

Question 11

In 2018, Mark has $18,000 short-term capital loss, $7,000 28% gain, and $6,000 0%/15%/20% gain. Which of the statements below is correct?
A) Mark has a $5,000 capital loss deduction.
B) Mark has a $3,000 capital loss deduction.
C) Mark has a $13,000 net capital gain.
D) Mark has a $5,000 net capital gain.
E) Mark has a $18,000 net capital loss.

Accepted Answer

Firstly, Mark can only use up to $3,000 of his capital losses to offset ordinary income. Therefore, he can use the $18,000 short-term capital loss to offset $3,000 of his ordinary income, leaving him with $15,000 of remaining net capital loss.
Next, Mark has a 28% gain of $7,000 and a combined gain of $6,000 with rates of 0%, 15%, and 20%. He can use the remaining $3,000 net capital loss to offset part of the gains, which leaves him with a net capital gain of $10,000 ($7,000 + $6,000 - $3,000). 
Since Mark has a net capital gain, he must report it on his tax return. Therefore, choices C, D, and E are incorrect. 
The correct answer is B because Mark can use up to $3,000 of his capital losses to offset his ordinary income.

Question 12

Cason is filing as single and has 2018 taxable income of $36,000 which includes $34,000 of 0%/15%/20% net long- term capital gain. What is his tax on taxable income using the alternative tax method? Note: Use the tax rate schedule rather than the tax table.
A) $0
B) $200
C) $300
D) $4,924
E) None of the above

Accepted Answer

Cason's taxable income includes $34,000 of long-term capital gains, which are taxed at 0% up to $38,600 for a single filer in 2018. The remaining $2,000 of ordinary income is taxed at the 10% rate, resulting in $200 of tax.

Question 13

A painting is acquired by an individual for use in his home. The painting is not of investment quality. It is later sold at a loss of $45. Which of the following statements is correct?
A) The painting was a capital asset.
B) The loss on the painting is not deductible.
C) The loss on the painting is a deductible capital loss.
D) The painting was an ordinary asset.
E) a. and b.

Accepted Answer

The painting is considered a capital asset because it is personal property, but the loss is not deductible because it was not held for investment purposes.

Question 14

White Company acquires a new machine for $75,000 and uses it in White's manufacturing operations. A few months after White places the machine in service, it discovers that the machine is not suitable for White's business. White had fully expensed the machine in the year of acquisition using § 179. White sells the machine for $60,000 in the tax year after it was acquired, but held the machine only for a total of 10 months. What was the tax status of the machine when it was disposed of and the amount of the gain or loss?
A) A capital asset and $60,000 gain.
B) An ordinary asset and $60,000 gain.
C) A § 1231 asset and $60,000 gain.
D) A § 1231 asset and $60,000 loss.
E) None of the above.

Accepted Answer

The machine is considered an ordinary asset because it was held for less than a year and used in the business. The gain is calculated as the selling price ($60,000) minus the adjusted basis ($0, since it was fully expensed under § 179), resulting in a $60,000 gain.

Question 15

Violet, Inc., has a 2018 $80,000 long-term capital gain included in its $285,000 taxable income. Which of the following is correct?
A) Violet will benefit from an alternative tax on net capital gains computation.
B) Violet's regular tax on taxable income is computed because there is no corporate alternative tax on net capital gains approach.
C) Violet's $80,000 net capital gain is not taxable.
D) Violet's regular tax on taxable income will be greater than its tax using an alternative tax on net capital gain approach.
E) None of the above.

Accepted Answer

Option B is correct because there is no corporate alternative tax on net capital gains approach. Violet Inc. will have to pay regular tax on its taxable income, which includes the $80,000 long-term capital gain. The other options are incorrect because Violet Inc. will not benefit from an alternative tax on net capital gains computation, the $80,000 net capital gain is taxable, and it is not possible to determine whether Violet's regular tax on taxable income will be greater than using an alternative tax approach since there is no alternative tax approach available for corporations.

Question 16

Property is acquired in a qualifying like-kind exchange. The acquired property is sold three months after it is acquired. Which of the following is correct?
A) Since the holding period of the property given up in the exchange "tacks" to the holding period of the acquired property, the holding period of the acquired property could be long-term.
B) The holding period of the acquired property is short-term.
C) The holding period of property acquired in a like-kind exchange is always long-term.
D) When property acquired in a like-kind exchange is disposed of, the holding period is not relevant.
E) None of the above.

Accepted Answer

In a like-kind exchange, the holding period of the property given up "tacks" onto the holding period of the acquired property. If the original property was held long-term, the acquired property can also have a long-term holding period.

Question 17

Which of the following assets held by a manufacturing business is a § 1231 asset?
A) Inventory.
B) Office furniture used in the business and held less than one year.
C) A factory building used in the business and held more than one year.
D) Accounts receivable.
E) All of the above.

Accepted Answer

Only the factory building used in the business and held for more than one year qualifies as a § 1231 asset. Inventory and accounts receivable are not § 1231 assets, and office furniture held for less than one year is considered a short-term asset.

Question 18

Seamus had $16,000 of net short-term capital loss in 2017. In 2018, Seamus has $17,000 of long-term capital loss and $26,000 of long-term capital gain. Which of the following statements is correct?
A) Seamus had a $13,000 short-term capital loss carryover to 2018.
B) Seamus reports an overall $9,000 net capital gain in 2018.
C) Seamus reports an overall $4,000 net short-term capital loss in 2018.
D) a. and c.
E) None of the above.

Accepted Answer

- Seamus had $16,000 of net short-term capital loss in 2017, which can be carried forward to future years.
- In 2018, Seamus has a $17,000 long-term capital loss and $26,000 long-term capital gain. The net long-term capital gain is $9,000 ($26,000 - $17,000).
- Seamus can apply the short-term capital loss carryover of $16,000 against the net long-term capital gain of $9,000, resulting in a remaining $7,000 long-term capital loss.
- The remaining $7,000 long-term capital loss can be used to offset any other capital gains in 2018 or carried forward to future years.
- Therefore, Seamus reports an overall $4,000 net short-term capital loss in 2018 ($0 short-term capital gain/loss - $16,000 short-term capital loss carryover + $7,000 remaining long-term capital loss = -$9,000 net capital loss, which can only be deducted up to $3,000 against other income in 2018, resulting in a $4,000 net short-term capital loss).

Question 19

Robin Corporation has ordinary income from operations of $30,000, net long-term capital gain of $10,000, and net short-term capital loss of $15,000. What is the taxable income for 2018?
A) $25,000
B) $27,000
C) $28,500
D) $30,000
E) None of the above

Accepted Answer

The answer of Robin Corporation has ordinary income from operations...

Question 20

Which of the following assets held by a cash basis accounting firm is a § 1231 asset?
A) An account receivable from a client.
B) A desk used in the business and held more than one year.
C) An investment in Orange Company common stock.
D) A computer used in the business, held more than one year, but fully depreciated under § 179 when acquired.
E) b. and d.

Accepted Answer

A § 1231 asset is an asset held for more than one year and used in a trade or business. It includes tangible property (such as equipment or buildings) or intangible property (such as patents or copyrights) used in the business.

Choice B is a tangible property held for more than one year, and choice D is also a tangible property used in the business, held for more than one year and eligible for depreciation under § 179, both of which fit the definition of a § 1231 asset. The other choices, including an account receivable and an investment in stock, do not meet the criteria. Therefore, the best choice(s) are b. and d.

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

Which of the following comparisons is correct?

Martha has both long-term and short-term 2018 capital gains and losses. The result of netting these gains and losses is a net long-term capital loss. Martha has no qualified dividend income. Also, Martha's 2018 taxable income puts her in the 24% tax bracket. Which of the following is correct?

Thoren has the following items for the year: $4,000 of short-term capital gain, $5,000 of 0%/15%/20% long-term capital gain, and $1,500 of 28% capital loss. Which of the following is correct?

In 2018, an individual taxpayer has $863,000 of taxable income that includes $48,000 of 0%/15%/20% long-term capital gain. Which of the following statements is correct?

In 2018, Satesh has $5,000 short-term capital loss, $13,000 0%/15%/20% long-term capital gain, and $7,000 qualified dividend income. Satesh is single and has other taxable income of $15,000. Which of the following statements is correct?

Jillian, a single taxpayer, has a net long-term capital gain for the year and it is all made up of 25% long-term capital gain. She has positive taxable income for the year. Which of the following is not a possible tax rate that could be applied in taxing this gain as part of her taxable income?

Emilio owns vacant land he is holding for investment. Two years ago he granted an option to purchase the land. The option grantee paid $25,000 for the option. This year the option expired unexercised. As a result, Emilio has:

Which of the following is not a "tax status" for an asset?

In 2017, Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction. In 2018, Jenny has a $18,000 0%/15%/20% long-term capital gain and no other capital gain or loss transactions. Which of the statements below is correct for 2018?

In 2018, Mark has $18,000 short-term capital loss, $7,000 28% gain, and $6,000 0%/15%/20% gain. Which of the statements below is correct?

Cason is filing as single and has 2018 taxable income of $36,000 which includes $34,000 of 0%/15%/20% net long- term capital gain. What is his tax on taxable income using the alternative tax method? Note: Use the tax rate schedule rather than the tax table.

A painting is acquired by an individual for use in his home. The painting is not of investment quality. It is later sold at a loss of $45. Which of the following statements is correct?

Violet, Inc., has a 2018 $80,000 long-term capital gain included in its $285,000 taxable income. Which of the following is correct?

Property is acquired in a qualifying like-kind exchange. The acquired property is sold three months after it is acquired. Which of the following is correct?

Which of the following assets held by a manufacturing business is a § 1231 asset?

Seamus had $16,000 of net short-term capital loss in 2017. In 2018, Seamus has $17,000 of long-term capital loss and $26,000 of long-term capital gain. Which of the following statements is correct?

Robin Corporation has ordinary income from operations of $30,000, net long-term capital gain of $10,000, and net short-term capital loss of $15,000. What is the taxable income for 2018?

Which of the following assets held by a cash basis accounting firm is a § 1231 asset?