Question 1

Shanstella bought a 4-unit apartment building in July 2006 for $360,000 and sold it for $480,000 in 2015. 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 recapture of depreciation at a 25% rate.

Question 2

Patrice sells a parcel of land for $50,000 cash and the buyer assumes Patrice's liability of $7,000 on the land. Patrice's basis in the land is $40,000. What is the gain or loss she will recognize on the sale?

Accepted Answer

To calculate the gain or loss on the sale of the land, we need to calculate the amount realized and subtract it from the basis.

Amount realized = Cash received + Liability assumed by buyer
Amount realized = $50,000 + $7,000 = $57,000

Gain or loss = Amount realized - Basis
Gain or loss = $57,000 - $40,000 = $17,000 gain

Therefore, Patrice will recognize a $17,000 gain on the sale. The correct answer is D.

Question 3

Which of the following statements is correct regarding the sale of ordinary assets?

Accepted Answer

The answer of Which of the following statements is correct...

Question 4

In 2009, Naila purchased land for $77,000 for use in her landscape business. She sold it in 2015 for $83,000. If Naila has no other sales of business or trade property, how will this gain be taxed?

Accepted Answer

Since the land was held for more than one year, the gain will be considered a long-term capital gain and will be taxed at the long-term capital gains rate. The gain is calculated by subtracting the purchase price from the selling price, resulting in a gain of $6,000.

Question 5

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 6

Which one of the following is a capital asset?

Accepted Answer

The answer of Which one of the following is a...

Question 7

Hiroko, a single taxpayer, has wage income of $80,000. In addition, she has $5,000 in long-term capital losses, $4,000 in long-term capital gains, and $4,000 in short-term capital gains. What is Hiroko's AGI for 2015?

Accepted Answer

Hiroko's adjusted gross income (AGI) can be calculated as follows:
Wage income = $80,000
Long-term capital losses = ($5,000)
Long-term capital gains = $4,000
Short-term capital gains = $4,000
Total income = $83,000
Therefore, Hiroko's AGI for 2015 is $83,000.

Question 8

Marquez purchased some equipment for $58,750 on August 15, 2014. He decided he did not need the equipment so he sold it on June 13, 2015 for $56,500. The equipment was subject to depreciation of $6,964 for 2014 and 2015. What gain or loss will Marquez recognize on the sale of the equipment?

Accepted Answer

The equipment was sold for $56,500, which is $2,250 less than its original cost of $58,750. However, the equipment was also depreciated by $6,964 over the two years that Marquez owned it. This means that the equipment's adjusted basis is $51,786 ($58,750 - $6,964). Therefore, Marquez will recognize a gain of $4,714 on the sale of the equipment ($56,500 - $51,786). This gain is ordinary because the equipment was used in Marquez's business.

Question 9

Before the tax implications of asset sales can be determined, which of the following must be determined?

Accepted Answer

Before the tax implications of asset sales can be determined, all of these factors must be considered: assets must be classified as either personal, trade or business, or investment assets, the length of time the taxpayer owned the property, and whether the assets are subject to depreciation.

Question 10

Juanita is a sole proprietor who has some outstanding receivables she wishes to sell. The receivables have a $16,000 FMV and a basis of $10,000. Juanita sells the receivables for $12,500. What gain or loss does Juanita recognize on the sale?

Accepted Answer

The gain recognized by Juanita is calculated as the difference between the selling price ($12,500) and the basis of the receivables ($10,000), which equals $2,500. Since the receivables are considered ordinary assets in the course of her business, the gain is classified as ordinary.

Question 11

Lourdes, a sole proprietor, collected $8,650 on November 21, 2015 on some of her outstanding receivables. Her basis in these receivables was $0. What is the gain or loss Lourdes recognizes for 2015?

Accepted Answer

The payments are within the normal course of business, so there is no gain or loss recognized.

Question 12

Patty and Rich, married filing jointly, have $385,000 in MAGI and $90,000 of net investment income (NII). They will pay a surtax of:

Accepted Answer

Patty and Rich’s NII is greater than the threshold of $250,000 for married filing jointly taxpayers. Therefore, they are subject to the 3.8% surtax on their NII. The surtax is calculated as the lesser of NII or the amount by which MAGI exceeds the threshold for their filing status. In this case, the surtax is calculated on $90,000, which is less than the amount by which their MAGI exceeds the threshold ($135,000). So, their surtax is $90,000 x 3.8% = $3,420.

Question 13

Section 1231 property is:

Accepted Answer

Section 1231 property refers to property used in a trade or business that may or may not be subject to depreciation and is held for more than one year. It includes tangible assets such as buildings and equipment, but also intangible assets such as patents and copyrights that are used in a trade or business.

Question 14

Glenn sells a piece of equipment used in his business for $31,500. The equipment was purchased on July 1, 2013, at a cost of $22,000. Glenn has taken $6,600 of depreciation on the equipment. What are the amount and classification of the gain on the sale by Glenn?

Accepted Answer

The gain on the sale is calculated as the selling price ($31,500) minus the adjusted basis (original cost $22,000 - depreciation $6,600), resulting in a gain of $16,100. Under Section 1245, the gain up to the amount of depreciation taken ($6,600) is ordinary income, and the remaining $9,500 is a Section 1231 gain.

Question 15

Gilberto invested in a mid-size local company with gross assets of $16,000,000. Gilberto purchased 1,000 shares for $48,000 in 1999. In 2015, Gilberto sold the stock for $78,000. How is the gain treated for tax purposes?

Accepted Answer

The answer of Gilberto invested in a mid-size local company...

Question 16

What is the basis of artistic works that have been gifted to another by the creator?

Accepted Answer

The answer of What is the basis of artistic works...

Question 17

Reuben, a single taxpayer, has wage income of $75,000. He also has a short-term capital loss of $5,000, a short-term capital gain of $2,000, and a long-term capital gain of $3,000. What is Reuben's AGI for 2015?

Accepted Answer

The answer of Reuben, a single taxpayer, has wage income...

Question 18

The top tax rates for an individual with long-term capital gains on the sale of stock and on the sales of collectibles, sold after December 31, 2012 are:

Accepted Answer

The top tax rate for long-term capital gains on the sale of stock is 20%, and for collectibles, it is 28% for sales after December 31, 2012.

Question 19

A taxpayer purchased land in 2008 for $85,000 and sold it in 2015 for $75,000 cash. The buyer also assumed the mortgage of $5,000. What is the amount of gain/loss on the sale of the land?

Accepted Answer

The taxpayer's total amount realized from the sale is $75,000 (cash) + $5,000 (mortgage assumed) = $80,000. The original purchase price was $85,000. Therefore, the loss is $85,000 - $80,000 = $5,000.

Question 20

Which one of the following is Section 1231 property?

Accepted Answer

Section 1231 property refers to depreciable property or real estate used in a business or trade for more than a year. A building used in a trade or business falls under this category. Accounts receivable and inventory are not considered 1231 property. Copyright owned by an author is considered as an intangible asset and not a 1231 property.

Quiz 7: Capital Gains and Other Sales of Property