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Exam 14: Property Transactions: Capital Gains and Losses

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Question 41

True/False

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A personal use property casualty loss is generally deductible only to the extent it exceeds 10% of taxable income.

A) True
B) False

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Question 42

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Which of the following creates potential § 1245 depreciation recapture and potential § 1231 gain?

A) Depreciable equipment held more than one year and sold for more than its original cost.
B) Amortizable goodwill held more than one year and disposed of for less than its adjusted basis.
C) Land held more than one year and sold for more than was paid for it.
D) Inventory held more than one year and sold for more than was paid for it.
E) None of the above.

F) A) and C)
G) A) and D)

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Question 43

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As a general rule,the sale or exchange of an option to buy or sell property results in capital gain or loss if the property subject to the option is (or would be)a capital asset in the hands of the option holder.

A business machine purchased April 10,2010,for $62,000 was fully depreciated in 2010 using § 179 immediate expensing.On August 15,2011,the sole proprietor who owned the machine gave it to his son.On that date,the machine's fair market value was $57,000.The son did not use the machine in business or hold it as inventory and the machine was sold on November 22,2011,for $53,000.What is the amount and nature of the gain or loss from disposition of the machine? Where is it reported in the son's tax return?

Hidasu is a mechanical engineer and,while unemployed,invents a switching device for computer networks.He patents the device,but does not reduce it to practice.Hidasu has a zero tax basis for the patent.In consideration of $600,000 plus a $2 royalty per device sold,Hidasu assigns the patent to a computer manufacturing company.Hidasu assigned all substantial rights in the patent.Which of the following is correct?

The chart below details Sheen's 2009,2010,and 2011 stock transactions.What is the capital loss carryover to 2011 and what is the net capital gain or loss for 2011?

Tom has owned 20 shares of Burgundy Corporation stock for four years.He sells the stock short for a total of $800.One month later,he closes the short sale by purchasing and delivering 20 shares of Burgundy Corporation stock for a total of $600.Tom has a $200 short-term capital gain.

The § 1245 depreciation recapture potential does not reduce the amount of the charitable contribution deduction under § 170.

In 2011,Manuelo has $29,000 short-term capital loss,$10,000 28% gain,and $6,000 0%/15% gain.Which of the statements below is correct?

Martha is single with one dependent and files as head of household.She had 2011 taxable income of $45,000 which included $16,000 of 0%/15% net long-term capital gain.What is her tax on taxable income using the alternative tax on net long-term capital gain method?

Recognized gains and losses must be properly classified.Proper classification depends upon:

Harold is a head of household,has $27,000 of taxable income in 2011 from non-capital gain or loss sources,and has the following capital gains and losses: What is Harold's taxable income and the tax on that taxable income?

An accrual basis taxpayer accepts a note receivable from a retail customer with a weak credit rating.The taxpayer immediately sells the note to a bank for less than the note's stated value.The taxpayer has a capital loss.

Sara is filing as head of household and has 2011 taxable income of $27,000 which includes $13,000 of net long-tem capital gain.The net long-term capital gain is made up of $10,000 25% gain and $3,000 0%/15% gain.What is the tax on her taxable income using the alternative tax method?

Sean purchased vacant land in 2005 that she subdivided for resale as lots.All 10 of the lots were sold during 2011.The lots had a tax basis of $7,000 each and sold for $45,000 each.Sean made no substantial improvements to the lots.She acted as her own real estate broker; so there were no sales expenses for selling the lots.Which of the following statements is correct?

Original issue discount is amortized over the life of the bond.

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

A worthless security had a holding period of 10 months when it became worthless on November 10,2011.The investor who had owned the security had a basis of $10,000 for it.Which of the following statements is correct?

When an individual taxpayer has a net long-term capital gain that includes both 25% gain and 0%/15% gain,which of these gains will be taxed first when the alternative tax on net long-term capital gain method is used and what difference does it make?

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