Question 1

Tom has owned 40 shares of Orange Corporation stock for five years. He sells the stock short for a total of $1,100. One month later, he closes the short sale by purchasing and delivering 40 shares of Orange Corporation stock for a total of $600. Tom has a $500 short-term capital gain.

Accepted Answer

A) True 
 B)False

Question 2

Virgil was leasing an apartment from Marple, Inc. Marple paid Virgil $1,000 to cancel his lease and move out so that Marple could demolish the building. As a result:

Accepted Answer

A) Virgil has a $1,000 capital gain. 
B) Virgil has a $1,000 capital loss. 
C) Marple has a $1,000 capital loss. 
D) Marple has a $1,000 capital gain. 
E) None of the above.

Question 3

Hiram is a computer engineer and, while unemployed, invents a switching device for computer networks. He patents the device, but does not reduce it to practice. Hiram has a zero tax basis for the patent. In consideration of $800,000 plus a $1 royalty per device sold, Hiram assigns the patent to a computer manufacturing company. Hiram assigned all substantial rights in the patent. Which of the following is correct?

Accepted Answer

A) Hiram automatically has long-term capital gain from the lump sum payment, but not from the royalty payments. 
B) Hiram automatically has long-term capital gain from the royalty payments, but not from the lump sum payment. 
C) Hiram automatically has long-term capital gain from both the lump sum payment and the royalty payments. 
D) Hiram does not have automatic long-term capital gain from either the lump sum payment or the royalty payments. 
E) None of the above.

Question 4

The tax law requires that capital gains and losses be separated from other types of gains and losses. Among the reasons for this treatment are:

Accepted Answer

A)  Long-term capital gains may be taxed at a lower rate than ordinary gains. 
B)  Capital losses that are short-term are not deductible. 
C)  Net capital loss is deductible only up to $3,000 per year for individual taxpayers. 
D)  a. and c. 
E)  None of the above.

Question 5

A business taxpayer sells depreciable business property with an adjusted basis of $40,000 for $32,000. The taxpayer held the property for more than a year. The taxpayer has an $8,000 capital loss.

Accepted Answer

A) True 
 B)False

Question 6

In 2017, 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?

Accepted Answer

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.

Question 7

The tax law requires that capital gains and losses be separated from other types of gains and losses because an alternative tax calculation may be used when taxable income includes net long-term capital gain.

Accepted Answer

A) True 
 B)False

Question 8

Recognized gains and losses from disposition of a capital asset may occur as a result of a:

Accepted Answer

A) Sale. 
B) Exchange. 
C) Casualty. 
D) Condemnation. 
E) All of the above.

Question 9

If a capital asset is sold at a gain, the holding period is important.

Accepted Answer

A) True 
 B)False

Question 10

Martha is unmarried with one dependent and files as head of household. She had 2017 taxable income of $45,000 which included $16,000 of 0%/15%/20% net long-term capital gain. What is her tax on taxable income using the alternative tax on net long-term capital gain method?

Accepted Answer

The answer of Martha is unmarried with one dependent and...

Question 11

In 2016, Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction. In 2017, 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 2017?

Accepted Answer

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.

Question 12

Stella purchased vacant land in 2010 that she subdivided for resale as lots. All 10 of the lots were sold during 2017. The lots had a tax basis of $12,000 each and sold for $35,000 each. Stella 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?

Accepted Answer

A) Stella must hold the lots for at least 10 years before she is eligible for the special capital gain treatment of § 1237. 
B) The $230,000 gain from the sale of the ten lots is all ordinary income. 
C) All of the $230,000 gain from the sale of the ten lots is long-term capital gain. 
D) To be eligible for the special capital gain treatment of § 1237, Stella must be a real estate dealer. 
E) None of the above.

Question 13

All collectibles short-term gain is subject to a potential alternative tax rate of 28%.

Accepted Answer

A) True 
 B)False

Question 14

A security that was purchased by an individual and qualifies as § 1244 stock becomes worthless. The taxpayer is single and the loss is $30,000. The loss is treated as an ordinary loss.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following events causes the purchaser of an option to add the cost of the option to the basis of the property to which the option relates?

Accepted Answer

A) The option is exercised. 
B) The option is sold. 
C) The option lapses. 
D) The option is rescinded. 
E) None of the above.

Question 16

A worthless security had a holding period of 6 months when it became worthless on December 10, 2017. The investor who had owned the security had a basis of $20,000 for it. Which of the following statements is correct?

Accepted Answer

A) The investor has a long-term capital loss of $20,000. 
B) The investor has a short-term capital loss of $20,000. 
C) The investor has a nondeductible loss of $20,000. 
D) The investor has a short-term capital gain of $20,000. 
E) None of the above.

Question 17

Since the Code section that defines "capital asset" says what is not a capital asset, other Code sections have to help determine what is and what is not a capital gain or loss.

Accepted Answer

A) True 
 B)False

Question 18

Sara is filing as head of household and has 2017 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.

Accepted Answer

A) $0 
B) $8,503. 
C) $8,203. 
D) $8,303. 
E) None of the above

Exam 16: Property Transactions: Capital Gains and Losses

Tom has owned 40 shares of Orange Corporation stock for five years. He sells the stock short for a total of $1,100. One month later, he closes the short sale by purchasing and delivering 40 shares of Orange Corporation stock for a total of $600. Tom has a $500 short-term capital gain.

Virgil was leasing an apartment from Marple, Inc. Marple paid Virgil $1,000 to cancel his lease and move out so that Marple could demolish the building. As a result:

The tax law requires that capital gains and losses be separated from other types of gains and losses. Among the reasons for this treatment are:

A business taxpayer sells depreciable business property with an adjusted basis of $40,000 for $32,000. The taxpayer held the property for more than a year. The taxpayer has an $8,000 capital loss.

In 2017, 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?

The tax law requires that capital gains and losses be separated from other types of gains and losses because an alternative tax calculation may be used when taxable income includes net long-term capital gain.

Recognized gains and losses from disposition of a capital asset may occur as a result of a:

If a capital asset is sold at a gain, the holding period is important.

Martha is unmarried with one dependent and files as head of household. She had 2017 taxable income of $45,000 which included $16,000 of 0%/15%/20% net long-term capital gain. What is her tax on taxable income using the alternative tax on net long-term capital gain method?

In 2016, Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction. In 2017, 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 2017?

All collectibles short-term gain is subject to a potential alternative tax rate of 28%.

A security that was purchased by an individual and qualifies as § 1244 stock becomes worthless. The taxpayer is single and the loss is $30,000. The loss is treated as an ordinary loss.

Which of the following events causes the purchaser of an option to add the cost of the option to the basis of the property to which the option relates?

A worthless security had a holding period of 6 months when it became worthless on December 10, 2017. The investor who had owned the security had a basis of $20,000 for it. Which of the following statements is correct?

Since the Code section that defines "capital asset" says what is not a capital asset, other Code sections have to help determine what is and what is not a capital gain or loss.