Question 1

Darla sold an antique clock in 2017 for $3,000.She had purchased the clock in 2009 for $2,000.If she is otherwise in the 33% marginal tax bracket,what is the maximum tax rate on the capital gain on the sale of the clock?

Accepted Answer

A)  33% 
B)  15% 
C)  28% 
D)  20%

Question 2

Sanjay is single and has taxable income of $13,000 without considering the sale of a capital asset in November of 2017 for $15,000.That asset was purchased six years earlier and has a tax basis of $5,000.The tax liability applicable to only the capital gain is

Accepted Answer

A)  $0. 
B)  $500. 
C)  $1,000. 
D)  $1,500.

Question 3

If an individual taxpayer's net long-term capital losses exceed the net short-term capital gains,the excess may be offset against ordinary income up to $3,000 per year.Any excess losses over $3,000 may be carried over indefinitely.

Accepted Answer

A) True 
 B)False

Question 4

An uncle gifts a parcel of land to his niece,and he has to pay $25,000 of gift taxes.The land has appreciated substantially since he purchased it 20 year ago.The niece's basis in the land will be the uncle's cost plus the full $25,000 of gift taxes paid by the uncle.

Accepted Answer

A) True 
 B)False

Question 5

If property received as a gift has a basis of the fair market value of the property on the date of the gift,the donee's holding period starts on the day after the date of the gift.

Accepted Answer

A) True 
 B)False

Question 6

Margaret died on September 16,2017,when she owned securities with a basis of $50,000 and a FMV of $60,000.Caroline inherited the property and sold it on December 19,2017 for $67,000.What is Caroline's reported gain on this sale?

Accepted Answer

A)  $7,000 STCG 
B)  $7,000 LTCG 
C)  $17,000 STCG 
D)  $17,000 LTCG

Question 7

If a nontaxable stock dividend is received and is not the same type of stock as that owned before the dividend,the original stock's basis is allocated to all shares

Accepted Answer

A)  based on the par value of the stock. 
B)  equally to all shares owned after the stock dividend. 
C)  based on relative fair market values at the time of the stock dividend. 
D)  None of the above.

Question 8

Purchase of a bond at a significant discount will result in the investor recognizing a capital gain when the bond matures.

Accepted Answer

A) True 
 B)False

Question 9

Capital recoveries increase the adjusted basis of an asset.

Accepted Answer

A) True 
 B)False

Question 10

If a capital asset held for one year or more is sold at a gain,the gain is classified as long-term capital gain.

Accepted Answer

A) True 
 B)False

Question 11

Taj Corporation has started construction of a new mall with a cost estimate of $50 million.The mall is expected to be ready to open in 18 months.Taj cannot deduct the interest expense on the construction loan.

Accepted Answer

A) True 
 B)False

Question 12

Which one of the following is a capital asset?

Accepted Answer

A)  automobile held by car dealer for sale 
B)  automobile used for personal purposes 
C)  automobile used in taxpayer's trade or business 
D)  B and C only

Question 13

Adjusted net capital gain is taxed at 15% for individual taxpayers with marginal tax rates of 15% or higher,but less than 39.6%.

Accepted Answer

A) True 
 B)False

Question 14

In a basket purchase,the total cost is apportioned among the assets purchased according to the relative adjusted basis of the assets.

Accepted Answer

A) True 
 B)False

Question 15

Topaz Corporation had the following income and expenses during the current year:

What is Topaz's taxable income?

Accepted Answer

A)  $30,000 
B)  $50,000 
C)  $52,000 
D)  $20,000

Question 16

Funds borrowed and used to pay for an asset are not included in the cost until the borrowed funds are repaid.

Accepted Answer

A) True 
 B)False

Question 17

Corporate taxpayers may offset capital losses only against capital gains and may carry excess losses back three years and then forward five years.

Accepted Answer

A) True 
 B)False

Question 18

Rita,who has a marginal tax rate of 39.6%,is planning to make a gift to her grandson who is in the lowest tax bracket.Which of the following holdings of stock would be the most tax advantageous gift from Rita's perspective?

Accepted Answer

A)   
B)   
C)   
D)  For income tax purposes, Rita will be indifferent as to choice of stock to gift.

Question 19

On July 25,2016,Karen gives stock with a FMV of $7,500 and a basis of $8,000 to her nephew Bill.Karen had purchased the stock on March 18,2016.Bill sold the stock on April 18,2017 for $6,000.As a result of the sale,what must Bill report on his 2016 tax return?

Accepted Answer

A)  ($1,500) STCL 
B)  ($1,500) LTCL 
C)  ($2,000) STCL 
D)  ($2,000) LTCL

Question 20

Armanti received a football championship ring in college.During difficult economic times,Armanti sold the ring at a pawn shop.What are the tax issues of the sale to Armanti?

Accepted Answer

The answer of Armanti received a football championship ring in...

Exam 5: Property Transactions: Capital Gains and Losses

Darla sold an antique clock in 2017 for $3,000.She had purchased the clock in 2009 for $2,000.If she is otherwise in the 33% marginal tax bracket,what is the maximum tax rate on the capital gain on the sale of the clock?

Sanjay is single and has taxable income of $13,000 without considering the sale of a capital asset in November of 2017 for $15,000.That asset was purchased six years earlier and has a tax basis of $5,000.The tax liability applicable to only the capital gain is

If an individual taxpayer's net long-term capital losses exceed the net short-term capital gains,the excess may be offset against ordinary income up to $3,000 per year.Any excess losses over $3,000 may be carried over indefinitely.

An uncle gifts a parcel of land to his niece,and he has to pay $25,000 of gift taxes.The land has appreciated substantially since he purchased it 20 year ago.The niece's basis in the land will be the uncle's cost plus the full $25,000 of gift taxes paid by the uncle.

If property received as a gift has a basis of the fair market value of the property on the date of the gift,the donee's holding period starts on the day after the date of the gift.

Margaret died on September 16,2017,when she owned securities with a basis of $50,000 and a FMV of $60,000.Caroline inherited the property and sold it on December 19,2017 for $67,000.What is Caroline's reported gain on this sale?

If a nontaxable stock dividend is received and is not the same type of stock as that owned before the dividend,the original stock's basis is allocated to all shares

Purchase of a bond at a significant discount will result in the investor recognizing a capital gain when the bond matures.

Capital recoveries increase the adjusted basis of an asset.

If a capital asset held for one year or more is sold at a gain,the gain is classified as long-term capital gain.

Taj Corporation has started construction of a new mall with a cost estimate of $50 million.The mall is expected to be ready to open in 18 months.Taj cannot deduct the interest expense on the construction loan.

Which one of the following is a capital asset?

Adjusted net capital gain is taxed at 15% for individual taxpayers with marginal tax rates of 15% or higher,but less than 39.6%.

In a basket purchase,the total cost is apportioned among the assets purchased according to the relative adjusted basis of the assets.

Topaz Corporation had the following income and expenses during the current year: What is Topaz's taxable income?

Funds borrowed and used to pay for an asset are not included in the cost until the borrowed funds are repaid.

Corporate taxpayers may offset capital losses only against capital gains and may carry excess losses back three years and then forward five years.

Rita,who has a marginal tax rate of 39.6%,is planning to make a gift to her grandson who is in the lowest tax bracket.Which of the following holdings of stock would be the most tax advantageous gift from Rita's perspective?

On July 25,2016,Karen gives stock with a FMV of $7,500 and a basis of $8,000 to her nephew Bill.Karen had purchased the stock on March 18,2016.Bill sold the stock on April 18,2017 for $6,000.As a result of the sale,what must Bill report on his 2016 tax return?

Armanti received a football championship ring in college.During difficult economic times,Armanti sold the ring at a pawn shop.What are the tax issues of the sale to Armanti?