Question 1

When the buyer assumes the seller's liability,the seller includes this amount in computing the amount realized from the sale.

Accepted Answer

A) True 
 B)False

Question 2

Josephine gave her son,Shane 700 shares of Creative Marketing,Inc.common stock on May 26,2013.Josephine originally paid $9,000 for the stock on April 15,2013.At the date of the gift,the fair market value of the stock was $8,500.If no gift tax is paid and Shane sells the stock for $5,500 on May 26,2014,he will recognize:

Accepted Answer

A)  a short-term capital loss. 
B)  a long-term capital loss. 
C)  an ordinary loss. 
D)  no loss because Josephine already recognized the loss when she gave the stock to Shane. 
A)  a short-term capital loss. 
B)  a long-term capital loss. 
C)  an ordinary loss. 
D)  no loss because Josephine already recognized the loss when she gave the stock to Shane.

Question 3

Glenn sells a piece of equipment used in his business for $31,500.The equipment was purchased on July 1,2012,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

A)  $6,600 ordinary income under Section 1245 and $9,500 Section 1231 gain. 
B)  $9,500 Section 1231 gain. 
C)  $16,100 ordinary income under Section 1245. 
D)  $16,100 Section 1231 gain. 
A)  $6,600 ordinary income under Section 1245 and $9,500 Section 1231 gain. 
B)  $9,500 Section 1231 gain. 
C)  $16,100 ordinary income under Section 1245. 
D)  $16,100 Section 1231 gain.

Question 4

Leslie buys a sculpture from a collector for resale in her gallery.She purchased the sculpture for $5,000 and sold it 24 months later for $9,000.What are the nature and the amount of the gain on the sale?

Accepted Answer

A)  $4,000 gain subject to 28% tax rate. 
B)  $4,000 Section 1245 gain. 
C)  $4,000 ordinary income. 
D)  $5,000 ordinary gain and $4,000 Section 1231 gain. 
A)  $4,000 gain subject to 28% tax rate. 
B)  $4,000 Section 1245 gain. 
C)  $4,000 ordinary income. 
D)  $5,000 ordinary gain and $4,000 Section 1231 gain.

Question 5

Respond to the following independent situations:
a.Marie and Jim,husband and wife,filing jointly,earn $375,000 in salaries and do not have any net investment income.
How much in surtax will Marie and Jim be assessed on their Form 1040 for 2014? _____
b.Marie and Jim,husband and wife,filing jointly,earn $275,000 in salaries and $60,000 in capital gains,$40,000 in dividends,for a total MAGI of $375,000.
How much in surtax will Marie and Jim be assessed on their Form 1040 for 2014? _____
c.Marie and Jim,husband and wife,filing jointly earn $330,000 in income including $100,000 in capital gains.
How much in surtax will Marie and Jim be assessed on their Form 1040 for 2014? ______

Accepted Answer

a.$0. b.$3

Question 6

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

Accepted Answer

A)  the sale of inventory for a profit is considered to be a sale of an ordinary asset. 
B)  the sale of an asset outside the normal course of a trade or business is a sale of an ordinary asset. 
C)  the sale of business property held for more than a year is a sale of an ordinary asset. 
D)  the sale of any business property regardless of holding period is a sale of an ordinary asset. 
A)  the sale of inventory for a profit is considered to be a sale of an ordinary asset. 
B)  the sale of an asset outside the normal course of a trade or business is a sale of an ordinary asset. 
C)  the sale of business property held for more than a year is a sale of an ordinary asset. 
D)  the sale of any business property regardless of holding period is a sale of an ordinary asset.

Question 7

Demetrius had a $4,000 short-term loss and a $3,000 long-term gain from a collectible,a $2,000 gain from Section 1250 unrecaptured property.What is the netting effect of these gains and losses on his 1040?

Accepted Answer

A)  $4,000 short-term loss is offset against the $3,000 collectible first,then the remaining $1,000 against the Section 1250 property,with a $1,000 gain taxed at 25%. 
B)  The $4,000 short-term loss is allowed to be taken in total as an ordinary loss,and the net long-term gain of $5,000 is added to his 1040 and taxed at 0%,15%,or 20% depending on his regular tax bracket. 
C)  $2,000 short-term loss is offset against the Section 1250 property first,then the remaining $2,000 against the collectible gain leaving $1,000 taxed at 28%. 
D)  As each of these gains and losses are taxed at different rates,there is no netting of short-term and long-term gains or losses. 
A)  $4,000 short-term loss is offset against the $3,000 collectible first,then the remaining $1,000 against the Section 1250 property,with a $1,000 gain taxed at 25%. 
B)  The $4,000 short-term loss is allowed to be taken in total as an ordinary loss,and the net long-term gain of $5,000 is added to his 1040 and taxed at 0%,15%,or 20% depending on his regular tax bracket. 
C)  $2,000 short-term loss is offset against the Section 1250 property first,then the remaining $2,000 against the collectible gain leaving $1,000 taxed at 28%. 
D)  As each of these gains and losses are taxed at different rates,there is no netting of short-term and long-term gains or losses.

Question 8

Currently,the maximum capital gain rate applied to a taxpayer in the 15% regular tax bracket is 0%.

Accepted Answer

A) True 
 B)False

Question 9

Padraic purchased 50 shares of stock as an investment for the purchase price of $1,500 in 2011.In 2014 when the fair market value of the stock was $2,000,Padraic gave the stock to his sister,Fiona.If no gift tax is paid and Fiona sells the stock for $1,750 she will recognize:

Accepted Answer

A)  $250 gain. 
B)  $300 gain. 
C)  $500 gain. 
D)  $800 gain. 
A)  $250 gain. 
B)  $300 gain. 
C)  $500 gain. 
D)  $800 gain.

Question 10

The following is true if land is sold except:

Accepted Answer

A)  The gain on the sale of land used in a business is recorded on Form 4797. 
B)  The gain on the sale of land used in a business is recorded on Schedule 
C)  The gain on the sale of land used in a business is ordinary income and can appear on a Schedule C if it is owned by a sole proprietor. 
D)  The gain on the sale of land appears on the Form 1040 under the heading "other income". 
A)  The gain on the sale of land used in a business is recorded on Form 4797. 
B)  The gain on the sale of land used in a business is recorded on Schedule 
C)  The gain on the sale of land used in a business is ordinary income and can appear on a Schedule C if it is owned by a sole proprietor. 
D)  The gain on the sale of land appears on the Form 1040 under the heading "other income".

Question 11

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

A) True 
 B)False

Question 12

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

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Lourdes,a sole proprietor,collected $8,650 on November 21,2014 on some of her outstanding receivables.Her basis in these receivables was $0.What is the gain or loss Lourdes recognizes for 2014?

Accepted Answer

A)  no gain or loss as the payments are within the normal course of business. 
B)  a short-term gain as the payments are from receivables that are always considered short-term. 
C)  a short-term loss as the FMV is greater than the payments received on the receivables. 
D)  an ordinary gain because the receivables had a FMV greater than the basis of the receivables. 
A)  no gain or loss as the payments are within the normal course of business. 
B)  a short-term gain as the payments are from receivables that are always considered short-term. 
C)  a short-term loss as the FMV is greater than the payments received on the receivables. 
D)  an ordinary gain because the receivables had a FMV greater than the basis of the receivables.

Question 15

Which of the following is a Section 1221 asset?

Accepted Answer

A)  Rental property. 
B)  Business inventory. 
C)  Gold,silver,or other metals. 
D)  An original painting created by the taxpayer after May 17,2006. 
A)  Rental property. 
B)  Business inventory. 
C)  Gold,silver,or other metals. 
D)  An original painting created by the taxpayer after May 17,2006.

Question 16

Keisha sold 200 shares of Chic-Chic stock in 2014 for $22,500 and received a 1099-B to record the sale of the shares.Keisha's investment portfolio includes the following purchases of Chic-Chic's stock:   Assuming Keisha does not identify which shares she sold,she will recognize

Accepted Answer

A)  no gain or loss. 
B)  $500 gain. 
C)  $1,000 loss. 
D)  $3,125 loss. 
A)  no gain or loss. 
B)  $500 gain. 
C)  $1,000 loss. 
D)  $3,125 loss.

Question 17

Greg received a gift of 300 shares of stock from his sister,Terri.The stock cost Terri $30,000 five years ago.At the date of the gift,the stock is worth $22,500.
a.If the stock is sold for $34,000,calculate the amount and nature of the gain or loss.
b.If the stock is sold for $20,000,calculate the amount and nature of the gain or loss.
c.If the stock is sold for $28,000,calculate the amount and nature of the gain or loss.

Accepted Answer

a.$4,000 long-term g

Question 18

A taxpayer purchased land in 2012 for $26,000 and sold it in 2014 for $31,000 cash.The buyer also assumed the remaining mortgage of $13,000.What is the amount recognized on the sale of the land?

Accepted Answer

A)  $5,000 gain. 
B)  $8,000 loss. 
C)  $8,000 gain. 
D)  $18,000 gain. 
A)  $5,000 gain. 
B)  $8,000 loss. 
C)  $8,000 gain. 
D)  $18,000 gain.

Question 19

Oliver purchased the following stock of Doggie Treats Inc.   If Oliver sold 25 shares of stock in 2014 for $265,what is the loss on the sale of the stock? Assume the shares purchased in 2013 were held for more than one year.

Accepted Answer

A)  $9.50 short-term loss and $38.00 long-term loss. 
B)  $9.50 long-term loss and $38.00 short-term loss. 
C)  $8.00 short-term loss and $17.00 long-term loss. 
D)  $8.00 long-term loss and $17.00 short-term loss. 
A)  $9.50 short-term loss and $38.00 long-term loss. 
B)  $9.50 long-term loss and $38.00 short-term loss. 
C)  $8.00 short-term loss and $17.00 long-term loss. 
D)  $8.00 long-term loss and $17.00 short-term loss.

Question 20

Elandra purchased 500 shares in Prompt Messenger Services for $12,000 on November 21,2013.The company went bankrupt on June 13,2014,with no hope of recovery for the shareholders.On what date is the stock deemed to be worthless and what is the nature of the loss?

Accepted Answer

A)  December 31,2013,short-term loss in 2013. 
B)  December 31,2014,short-term loss in 2014. 
C)  December 31,2014,long-term loss in 2014. 
D)  June 13,2014,short-term loss in 2014. 
A)  December 31,2013,short-term loss in 2013. 
B)  December 31,2014,short-term loss in 2014. 
C)  December 31,2014,long-term loss in 2014. 
D)  June 13,2014,short-term loss in 2014.

When the buyer assumes the seller's liability,the seller includes this amount in computing the amount realized from the sale.

Glenn sells a piece of equipment used in his business for $31,500.The equipment was purchased on July 1,2012,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?

Leslie buys a sculpture from a collector for resale in her gallery.She purchased the sculpture for $5,000 and sold it 24 months later for $9,000.What are the nature and the amount of the gain on the sale?

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

Demetrius had a $4,000 short-term loss and a $3,000 long-term gain from a collectible,a $2,000 gain from Section 1250 unrecaptured property.What is the netting effect of these gains and losses on his 1040?

Currently,the maximum capital gain rate applied to a taxpayer in the 15% regular tax bracket is 0%.

Padraic purchased 50 shares of stock as an investment for the purchase price of $1,500 in 2011.In 2014 when the fair market value of the stock was $2,000,Padraic gave the stock to his sister,Fiona.If no gift tax is paid and Fiona sells the stock for $1,750 she will recognize:

The following is true if land is sold except:

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.

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.

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

Lourdes,a sole proprietor,collected $8,650 on November 21,2014 on some of her outstanding receivables.Her basis in these receivables was $0.What is the gain or loss Lourdes recognizes for 2014?

Which of the following is a Section 1221 asset?

Keisha sold 200 shares of Chic-Chic stock in 2014 for $22,500 and received a 1099-B to record the sale of the shares.Keisha's investment portfolio includes the following purchases of Chic-Chic's stock: Assuming Keisha does not identify which shares she sold,she will recognize

A taxpayer purchased land in 2012 for $26,000 and sold it in 2014 for $31,000 cash.The buyer also assumed the remaining mortgage of $13,000.What is the amount recognized on the sale of the land?

Oliver purchased the following stock of Doggie Treats Inc. If Oliver sold 25 shares of stock in 2014 for $265,what is the loss on the sale of the stock? Assume the shares purchased in 2013 were held for more than one year.

Elandra purchased 500 shares in Prompt Messenger Services for $12,000 on November 21,2013.The company went bankrupt on June 13,2014,with no hope of recovery for the shareholders.On what date is the stock deemed to be worthless and what is the nature of the loss?

Introduction to Taxation, the Income Tax Formula, and Form 1040ez

Expanded Tax Formula, Forms 1040a and 1040, and Basic Concepts

Gross Income: Inclusions and Exclusions

Adjustments for Adjusted Gross Income

Itemized Deductions

Self-Employed Business Income

Rental Property, Royalties, and Income From Flow-Through Entities

Tax Credits

Payroll Taxes

Retirement and Other Tax-Deferred Plans and Annuities

Special Property Transactions

At-Riskpassive Activity Loss Rules and the Individual Alternative Minimum Tax

Partnership Taxation

Corporate Taxation

Filters

Exam 7: Capital Gains and Other Sales of Property

When the buyer assumes the seller's liability,the seller includes this amount in computing the amount realized from the sale.

Glenn sells a piece of equipment used in his business for $31,500.The equipment was purchased on July 1,2012,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?

Leslie buys a sculpture from a collector for resale in her gallery.She purchased the sculpture for $5,000 and sold it 24 months later for $9,000.What are the nature and the amount of the gain on the sale?

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

Demetrius had a $4,000 short-term loss and a $3,000 long-term gain from a collectible,a $2,000 gain from Section 1250 unrecaptured property.What is the netting effect of these gains and losses on his 1040?

Currently,the maximum capital gain rate applied to a taxpayer in the 15% regular tax bracket is 0%.

Padraic purchased 50 shares of stock as an investment for the purchase price of $1,500 in 2011.In 2014 when the fair market value of the stock was $2,000,Padraic gave the stock to his sister,Fiona.If no gift tax is paid and Fiona sells the stock for $1,750 she will recognize:

The following is true if land is sold except:

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.

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.

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

Lourdes,a sole proprietor,collected $8,650 on November 21,2014 on some of her outstanding receivables.Her basis in these receivables was $0.What is the gain or loss Lourdes recognizes for 2014?

Which of the following is a Section 1221 asset?

Keisha sold 200 shares of Chic-Chic stock in 2014 for $22,500 and received a 1099-B to record the sale of the shares.Keisha's investment portfolio includes the following purchases of Chic-Chic's stock: Assuming Keisha does not identify which shares she sold,she will recognize

A taxpayer purchased land in 2012 for $26,000 and sold it in 2014 for $31,000 cash.The buyer also assumed the remaining mortgage of $13,000.What is the amount recognized on the sale of the land?

Oliver purchased the following stock of Doggie Treats Inc. If Oliver sold 25 shares of stock in 2014 for $265,what is the loss on the sale of the stock? Assume the shares purchased in 2013 were held for more than one year.

Elandra purchased 500 shares in Prompt Messenger Services for $12,000 on November 21,2013.The company went bankrupt on June 13,2014,with no hope of recovery for the shareholders.On what date is the stock deemed to be worthless and what is the nature of the loss?

Introduction to Taxation, the Income Tax Formula, and Form 1040ez

Expanded Tax Formula, Forms 1040a and 1040, and Basic Concepts

Gross Income: Inclusions and Exclusions

Adjustments for Adjusted Gross Income

Itemized Deductions

Self-Employed Business Income

Rental Property, Royalties, and Income From Flow-Through Entities

Tax Credits

Payroll Taxes

Retirement and Other Tax-Deferred Plans and Annuities

Special Property Transactions

At-Riskpassive Activity Loss Rules and the Individual Alternative Minimum Tax

Partnership Taxation

Corporate Taxation

Filters