Deck 4: Additional Income Part 2

Question 1

Which of the following sales results in a short-term gain/loss?

A)A capital asset bought on June 30, 2017 and sold June 20, 2018.
B)A capital asset bought on July 25, 2017 and sold August 19, 2018.
C)A capital asset bought on September 12, 2011 and sold August 19, 2018.
D)A capital asset bought on August 15, 2017 and sold August 16, 2018.
E)All of the above are long-term gains/losses.

Answer 1

A

Question 2

A taxpayer's personal automobile is a capital asset.

Answer 2

True

Question 3

Which of the following is a capital asset?

A)Inventory held by a manufacturer
B)Accounts receivable held by a dentist
C)All property owned by a taxpayer other than property specifically noted in the law as an exception
D)Depreciable property and real estate used in a trade or business

Answer 3

C

Question 4

The following are owned by Robert.Indicate which are capital assets.
a.Rental property at 123 Main Street ______
b.Tables and chairs sold in his furniture business ______
c.The cash register used in his furniture business ______
d.A 1972 Porsche 916 ______
e.The rights to Taylor Swift's song, "Blank Space" ______

Question 5

Which one of the following is a capital asset?

A)Accounts receivable
B)Copyright held by the author
C)Securities held for investment
D)Inventories
E)All of the above are capital assets

Question 6

Indicate whether a gain or loss realized in each of the following situations would be long-term or short-term by putting an "X" on the appropriate blank line:

Question 7

Sol purchased land as an investment on January 12, 2015 for $85,000.On January 31, 2018 Sol sold the land for $90,000 cash.What is the nature of the gain or loss?​

A)Long-term capital loss
B)Long-term capital gain
C)Short-term capital gain
D)Short-term capital loss
E)None of the above

Question 8

Which of the following is not true about capital assets?

A)Real property used in a trade or business is not a capital asset.
B)Capital losses may be carried back for 3 years to offset capital gains in those years.
C)Net long-term capital gains are granted preferential tax treatment.
D)Individual taxpayers may deduct net capital losses of up to $3,000 per year.
E)Shares of stock held for investment are capital assets.

Question 9

If a capital asset acquired August 5, 2017 is sold on February 6, 2018, any gain is a short-term capital gain.

Question 10

If property is received from a decedent, the taxpayer who inherits the property has the same basis in the property as the decedent.

Question 11

Accounts receivable are capital assets.

Question 12

An artist's painting is not a capital asset when held by the artist.

Question 13

If a capital asset acquired on October 27, 2010 is sold on April 30, 2018 for a gain, the gain is a long-term capital gain.

Question 14

The first day a capital asset acquired on August 31, 2017 may be sold for long-term capital gain or loss treatment is September 1, 2018.

Question 15

If the following are capital assets, mark with a "Yes." If they are not capital assets, mark with a "No."
a.A taxpayer's personal jet ski ______
b.Ford Motor Credit Company bond held by an investor ______
c.A baseball for sale at Sports.com ______
d.J.K.Rowling's personal copy of her original manuscript ofHarry Potter and the Sorcerer's Stone ______
e.An antique grandfather clock inherited from the taxpayer's aunt ______

Question 16

What are capital assets?

Question 17

Emily sold the following investments during the year: For each stock, calculate the amount and the nature of the gain or loss.

Question 18

The basis of property received as an inheritance is generally equal to the fair market value at the date of death.

Question 19

Sol purchased land as an investment on February 12, 2017 for $85,000.On January 31, 2018, Sol sold the land for $90,000 cash.What is the nature of the gain or loss?

A)Long-term capital loss
B)Long-term capital gain
C)Short-term capital gain
D)Short-term capital loss
E)None of the above

Question 20

Which of the following is a capital asset?

A)A literary work held by the author
B)Real estate held by a developer
C)A taxpayer's principle residence
D)A truck used in a taxpayer's business
E)None of the above

Question 21

An asset's adjusted basis is computed as:

A)Original basis + capital improvements − accumulated depreciation.
B)Original basis − capital improvements + accumulated depreciation.
C)Original basis + capital improvements + accumulated depreciation.
D)Original basis + capital improvements + gain or loss realized.
E)None of the above.

Question 22

Net short-term capital gains may be offset by net long-term capital losses.

Question 23

Robert and Becca file jointly.They have taxable income of $60,000 in 2018 (before considering any capital gains or losses).They have a long-term capital gain of $28,000 and a long-term capital loss of $17,000 on sales of stock in the current year.What will their capital gains tax be in the current year?

A)$0
B)$1,650
C)$2,200
D)$4,200
E)None of the above is correct

Question 24

For the current year, Susan had salary income of $20,000.In addition, she reported the following capital transactions during the year: $\begin{array}{llcc} \text { Long-term capital gain} &\$7,000 \\ \text { Short-term capital gain} &3,000\\ \text { Long-term capital loss} &(2,000)\\ \text {Short-term capital loss } &(5,000)\\\end{array}$
There were no other items includable in her gross income.What is the amount of her adjusted gross income for the current year?

A)$19,000
B)$23,000
C)$24,000
D)$25,000
E)None of the above

Question 25

The adjusted basis of an asset may be determined by the:

A)Selling price + gain realized.
B)Selling price − gain realized.
C)Selling price + capital improvements − accumulated depreciation.
D)Original basis + capital improvements − selling price.
E)None of the above.

Question 26

Which of the following is true about capital gains?

A)Short-term capital gains are not netted with other capital gains and losses.
B)For 2018, long-term capital gains are subject to special tax treatment.
C)Long-term capital gains are never taxed.
D)Net short-term capital gains are not netted with net long-term capital losses.
E)None of the above.

Question 27

An asset has an original basis of $25,000 and depreciation has been claimed for the asset in the amount of $20,000.If the asset's adjusted basis is $15,000, what is the amount of capital improvements that have been made to the asset?

A)$5,000
B)$10,000
C)$20,000
D)$30,000
E)None of the above

Question 28

For purposes of determining the adjusted basis of a capital asset at the time of its sale,

A)Capital improvements are added to the basis.
B)Ordinary repairs reduce the adjusted basis.
C)Accumulated depreciation is added to the basis.
D)The basis does not include costs such as title insurance and escrow fees related to the initial purchase.

Question 29

If a taxpayer is relieved of a liability on the disposition of property, the amount of the liability should be included in the amount realized on the sale or other disposition.

Question 30

If property is inherited by a taxpayer,

A)To the recipient, the basis for the property is the same as the basis to the decedent.
B)At sale date, the basis of the property to the recipient differs depending on whether the property was sold at a gain or a loss.
C)At sale date, the recipient will not have a gain or loss even if the recipient has held the property for more than a year.
D)In general, the basis to the recipient is the fair market value at the decedent's date of death.

Question 31

In December 2018, Ben and Jeri (married filing jointly)have a long-term capital gain of $55,000 on the sale of stock held for 4 years.They have no other capital gains and losses for the year.After the standard deduction, their ordinary income for the year, before the capital gain, is $76,900, making their total income for the year $131,900 ($76,900 + $55,000).In 2018, married taxpayers who file jointly pay tax of $8,850 on the first $76,900 of ordinary taxable income and 15% on long-term capital gains above $77,200.What is their total tax liability?

A)$8,850
B)$17,100
C)$17,055
D)$17,136

Question 32

Nick received a gift of stock from his father.Nick's father had purchased the stock 2 years earlier and his father's basis in the stock was $30,000.On the date of the gift, the stock had a fair market value of $25,000.
a.If Nick sells the stock for $33,000, calculate the amount of Nick's gain or loss on the transaction.
b.If Nick sells the stock for $22,000, calculate the amount of Nick's gain or loss on the transaction.
c.If Nick sells the stock for $27,000, calculate the amount of Nick's gain or loss on the transaction.

Question 33

Taxpayers are required to offset net short-term capital losses with net long-term capital gains.

Question 34

Bev owns an apartment complex she purchased 10 years ago for $480,000 with a $80,000 cash down payment accompanied by a $400,000 loan.Bev has made $70,000 of capital improvements on the complex and her depreciation claimed on the building to date is $100,000.Calculate Bev's adjusted basis in the building.

Question 35

Karen received a stock portfolio upon the death of her grandmother.The stock originally cost her grandmother $32,000, but was worth $250,000 when she died.What is Karen's tax basis in the stock portfolio? Explain.

Question 36

Carlos bought a building for $113,000 in 2014.He added an addition to the building for $26,000.In 2018, he sold it for $212,000.What was his long-term capital gain (ignore depreciation)?

A)$0
B)$47,000
C)$73,000
D)$99,000
E)$212,000

Question 37

Sol purchased land as an investment on January 12, 2012 for $85,000.On January 31, 2018, Sol sold the land for $30,000 cash.In addition, the purchaser assumed the mortgage of $70,000 on the land.What is the amount of the realized gain or loss on the sale?

A)$65,000 loss
B)$15,000 gain
C)$5,000 gain
D)$90,000 gain
E)None of the above

Question 38

Sol purchased land as an investment on January 12, 2015, for $85,000.On January 31, 2018, Sol sold the land for $25,000 cash.In addition, the purchaser assumed the mortgage of $70,000 on the land.What is the amount realized (not gain realized)on the sale of the land?

A)$10,000
B)$25,000
C)$70,000
D)$95,000
E)None of the above

Question 39

Bennett purchased a tract of land for $20,000 in 2012 when he heard that a new highway was going to be constructed through the property and the land would soon be worth $200,000.The highway project was abandoned in 2018 and the value of the land fell to $15,000.Bennett can claim a loss in 2018 of:

A)$0
B)$5,000
C)$165,000
D)$180,000
E)None of the above

Question 40

Currently, long-term capital gains are not afforded preferential tax treatment to individuals.

Question 41

In the current year, Marc, a single taxpayer, has ordinary income of $35,000.In addition, he has $3,000 in short-term capital gains, short-term capital losses of $6,000, and long-term capital gains of $4,000.What is Marc's adjusted gross income (AGI)for the current year?

A)$32,000
B)$39,000
C)$36,000
D)$34,000

Question 42

Martha has a net capital loss of $17,000 and other ordinary taxable income of $45,000 for the current year.What is the amount of Martha's capital loss carryforward?

A)$0
B)$10,000
C)$14,000
D)$17,000
E)None of the above

Question 43

Stewart, age 44, sells his personal residence of 4 years on June 14, 2018, for $190,000.The expenses of sale are $15,000 and he has paid for capital improvements of $3,000.Stewart purchased the residence for $100,000.On February 2, 2019, Stewart purchases and occupies a new residence at a cost of $200,000.
a.Calculate the gain realized on the sale of Stewart's residence.
b.How much gain must be recognized on the sale of Stewart's residence?
c.Calculate Stewart's basis in the new residence.

Question 44

Martha has a net capital loss of $20,000 and other ordinary taxable income of $45,000 for the current tax year.What is the amount of Martha's taxable income after deducting the allowed capital loss?

A)$25,000
B)$38,000
C)$42,000
D)$45,000
E)None of the above

Question 45

Which of the following statements is true?

A)A taxpayer's personal residence qualifies for a like-kind exchange.
B)A taxpayer who sells a personal residence may always exclude the realized gain from taxable income.
C)A one-time election is available to taxpayers 55 years of age or older which allows them to sell their personal residences and to exclude all of the realized gain.
D)None of the above are true.
E)All of the above are true.

Question 46

In 2018, the basis of a taxpayer's replacement residence is equal to the cost of the replacement residence less the gain which was deferred on the sale of the old residence.

Question 47

Simonne, a single taxpayer, bought her home in Orlando 25 years ago for $55,000.She has lived continuously in the home since she purchased it.In the current year, she sells her home for $405,000.What is Simonne's taxable gain on the sale?

A)$0
B)$90,000
C)$100,000
D)$350,000

Question 48

If not entirely used in one sale, the unused portion of the $250,000 exclusion on the sale of a taxpayer's principal residence may be used to reduce the recognized gain on the sale of the taxpayer's next residence.

Question 49

At the end of the current year, Falstaff sold for $4,800 General Martin stock that was purchased 5 months ago for $4,000.He also sold Cedar stock for $6,000 at the same time.The Cedar stock cost $4,000, 2 years ago.In addition, Falstaff has a short-term capital loss of $500 on the sale of silver.
a.Calculate the amount of Falstaff's net short-term and net long-term capital gain or loss.
b.If Falstaff has a net capital gain, what is the maximum rate at which the gain will be taxed?

Question 50

There is no limit on the amount of capital losses that an individual may deduct against ordinary income.

Question 51

For the current tax year, Morgan had $25,000 of ordinary income.In addition, he had an $1,900 long-term capital loss and a $1,600 short-term capital loss.What will be the amount of Morgan's capital loss carryforward to the next year?

A)$0
B)$300
C)$500
D)$3,000
E)$3,500

Question 52

In the current year, Estes has net short-term capital losses of $3,000, a net long-term capital loss of $45,000, and taxable income from wages of $35,000.
a.Calculate the amount of Estes' deduction for capital losses for the current year.
b.Calculate the amount and nature (short-term or long-term) of his capital loss carryforward.
c.For how many years may Estes carry the unused loss forward?

Question 53

In 2018, Paul, a single taxpayer, has taxable income of $30,000 exclusive of capital gains and losses.Paul incurred a $1,000 short-term capital loss and a $4,000 long-term capital loss.What is the amount of his long-term capital loss carryover to 2019?

A)$0
B)$2,000
C)$3,000
D)$5,000
E)None of the above

Question 54

The exclusion of gain on the sale of a personal residence may be elected only by a taxpayer who has owned three or more residences.

Question 55

During 2018, William sold the following capital assets: Calculate the following:
a.Total short-term capital gain/loss realized for tax purposes
b.Total long-term capital gain/loss realized for tax purposes
c.Deductible capital gain/loss
d.The amount and nature (short-term or long-term) of his capital loss carryforward
e.Assuming that William has no capital gain or loss for 2019, how much can he deduct in 2019 and what is the amount and nature of any carryforward to 2020?

Question 56

Jerry bought his home 15 years ago for $60,000.Three years ago, Jerry married Debbie and she moved into the same house and has lived there since.If they sell Jerry's house in the current year for $340,000, what is their taxable gain on a joint tax return?

A)$0
B)$280,000
C)$155,000
D)$30,000

Question 57

Russell purchased a house 1 year ago for $150,000 and, due to an employment-related move, sold the house this year for $190,000.What is Russell's taxable gain?

Question 58

In October of the current year, Mike sold a share of Berkshire-Hathaway for $73,000.He had acquired it several years ago at a cost of $42,000.He also sold Microsoft stock he had held for 3 years at a gain of $17,000.He had a short-term $2,000 loss on the sale of stock of a start-up technology company.He has $85,000 in taxable income before capital transactions are taken into account.Assuming Mike is single with no dependents, what is the amount of Mike's tax on the capital transactions?

Question 59

If a taxpayer sells his personal residence and purchases a new residence, realized gain may be recognized.

Question 60

On August 8, 2018, Sam, single, age 62, sold for $210,000 his principal residence, which he has lived in for 10 years, and which had an adjusted basis of $60,000.On November 1, 2018, he purchased a new residence for $80,000.For 2018, Sam should recognize a gain on the sale of his residence of:

A)$0
B)$25,000
C)$50,000
D)$130,000
E)None of the above

Question 61

Patrick owns a home on the beach in Daytona.He lives in the house for most of the year but leaves town during the popular motor sports race that comes through every year.During that time, he rents his home out for 3 weeks to race fans for $5,000.Which of the following is true?

A)Because Patrick rents the house for such a short period of time, the rental income is not taxable but he may deduct a percentage of expenses such as utilities and depreciation on the home.
B)Patrick did not rent the house for a long enough period of time to deduct a percentage of expenses such as utilities and depreciation on the home.The rental income he receives is taxable.
C)Because Patrick rented the home for more than 14 days, he must report the income.He is also allowed to deduct a percentage of expenses such as utilities and depreciation to the extent of the income.
D)If you live in your house for more than 50 percent of the year, then it is treated as a personal residence and you cannot deduct any expenses such as utilities and depreciation on the home.
E)None of the above is true.

Question 62

Walt and Jackie rent out their residence in San Diego to friends for 10 days while they vacation in Europe.They collect $1,000 of rental income.How is the rental income treated on their tax return? Explain.

Question 63

Donald rents out his vacation home for 9 months and lives in his vacation home for the remainder of the year.His gross rental income for 2018 is $7,200.The expenses attributable to the vacation home for the entire year are as follows: What amount would Donald report as net income or loss from the rental of the vacation home?

Question 64

Carmen owns a house that she rents out for $600 per month.Her expenses for the 2018 tax year are as follows: Carmen bought the property in March of 2004, and her basis for depreciation on the house is $110,000.She uses straight-line depreciation with a 27 ½ -year life, so the depreciation on the house is $4,000.Calculate Carmen's net income or loss from renting the house if her gross rental income is $7,200 ($600 × 12 months).

Question 65

Passive losses of one activity may not be used to offset passive income from another activity.

Question 66

Under the passive loss rules, real estate rental activities are specifically defined as passive, even if the taxpayer actively manages the property.

Question 67

Passive losses are fully deductible as long as they do not exceed $50,000 during the year.

Question 68

Selma owns a beach cottage that she rents to tourists.In the current year she rented the cottage for 90 days.What is the maximum number of days Selma can use the cottage before her expense deduction will be limited to her gross rental income?

A)0 days
B)9 days
C)14 days
D)18 days

Question 69

Donald owns a two-family home.He rents out the first floor and resides on the second floor.The following expenses attributable to the total building were incurred by Donald for the year ended December 31, 2018: $$\begin{array} { l r } \text { Real estate taxes } & \$ 1,800 \\\text { Mortgage interest } & 1,600 \\\text { Utilities } & 1,200 \\\text { Repairs (first floor) } & 1,400 \\\text { Painting (second floor) } & 400\end{array}$$ In addition, the depreciation attributable to the entire building would be $2,000.What is the total amount of the expenses that Donald can deduct on Schedule E of Form 1040 (before any limitations)?

A)$3,300
B)$3,850
C)$4,000
D)$4,700
E)None of the above

Question 70

Bill is the owner of a house with two identical apartments.He resides in one apartment and rents the other apartment to a tenant.The tenant made timely monthly rental payments of $550 per month for the months of January through December 2018.The following expenses were incurred on the entire building: $$\begin{array} { l r } \text { Utilities } & \$ 3,600 \\\text { Maintenance and repairs } & 900 \\\text { Insurance } & 500\end{array}$$ In addition, depreciation allocable to the rented apartment is $1,500.What amount should Bill report as net rental income for 2018?

A)$0
B)$100
C)$1,400
D)$2,600
E)None of the above

Question 71

Lester rents his vacation home for 6 months and lives in the home during the other 6 months of 2018.The gross rental income from the home is $4,500.For the entire year, real estate taxes are $800, interest is $3,000, utilities and maintenance expenses are $2,200, and depreciation expense on the entire home would be $4,000.What is Lester's allowable net loss from renting his vacation home?

A)$5,500 loss
B)$3,000 loss
C)$500 loss
D)$250 loss
E)None of the above

Question 72

If a residence is rented for 15 days or more and is used for personal purposes for not more than 14 days or 10 percent of the days rented, whichever is greater, no allocation of expenses is required and the taxpayer may claim a deduction for the full amount of the expenses.

Question 73

In the current year, 70-year-old Jeanette sells her personal residence of the last 40 years for $365,000.Jeanette's basis in her residence is $70,000.The expenses associated with the sale of her home total $20,000.Jeanette decides to move in with her daughter rather than purchase a new residence.Calculate Jeanette's realized gain and recognized gain on the sale of her residence.
a.Realized gain
b.Recognized gain

Question 74

When a residence is rented for less than 15 days during the year, the rental income is excluded from gross income.​

Question 75

Net losses on the rental of vacation homes are limited to 15 percent of total gross income.

Question 76

In most cases, an individual taxpayer reports rental income and the related expenses on Schedule E.

Question 77

The expenses associated with the rental of a residence used for both personal and rental purposes are subject to three possible tax treatments.Which of the following is not included as one of the three?

A)If a residence is rented for fewer than 15 days during the year the rental period is disregarded and the residence is regarded as a personal residence for tax purposes.
B)If the residence is rented for 15 days or more and is used for personal purposes for not more than 14 days or 10 percent of the days rented, whichever is greater, the residence is treated as rental property.
C)If the residence is rented for 15 days or more and is used for personal purposes for not more than 14 days or 10 percent of the days rented, whichever is greater, the residence is treated as a personal residence for tax purposes.
D)If the residence is rented for 15 days or more and is used for personal purposes for more than 14 days or 10 percent of the days rented, whichever is greater, allocable rental expenses are allowed only to the extent of rental income.

Question 78

Mike owns a house that he rents out for $1,000 per month.His expenses for the 2018 tax year are as follows: Mike bought the property in September of 2009, and his basis for depreciation on the house is $137,500.He uses straight-line depreciation with a 27 ½-year life, so the depreciation on the house is $5,000.Mike does not use a property manager and handles all aspects of the rental activity himself.
a.Calculate Mike's net income or loss from renting the house if his gross rental income is $12,000 ($1,000 × 12 months).
b.Is the income or loss on Mike's rental considered to be active, passive, or portfolio income?

Question 79

Selma owns a beach cottage that she rents to tourists.In the current year she rented the cottage for 180 days.What is the maximum number of days Selma can use the cottage before her expense deduction will be limited to her gross rental income?

A)0 days
B)9 days
C)14 days
D)18 days

Question 80

Mort is the owner of an apartment building containing ten identical apartments.Mort resides in one apartment and rents out the remaining units.For 2018, the following information is available: $$\begin{array} { l r } \text { Gross rents } & \$ 21,600 \\\text { Utilities for total building } & 2,500 \\\text { Maintenance and repairs (rental apartments only) } & 1,050 \\\text { Advertising for vacant apartments } & 300 \\\text { Depreciation of building (all ten units) } & 4,000\end{array}$$ What amount should Mort report as net rental income for 2018?

A)$12,750
B)$13,500
C)$13,750
D)$14,400
E)None of the above