Question 1

Perry acquired raw land as an investment in 1996.The land cost $60,000.In 2013,the land is sold for a total sales price of $120,000,consisting of $10,000 cash and the buyer's note for $110,000.If Perry elects to recognize the entire gain in the year of sale,what is his recognized gain in 2013?

Accepted Answer

The recognized gain is the difference between the sales price ($120,000) and the original cost ($60,000), which is $60,000.

Question 2

On August 8,2013,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 1,2013,he purchased a new residence for $80,000.For 2013,Sam should recognize a gain on the sale of his residence of:

Accepted Answer

Sam qualifies for the home sale exclusion, which allows him to exclude up to $250,000 of gain from the sale of his principal residence. His gain is $150,000 ($210,000 - $60,000), which is fully excluded, resulting in a recognized gain of $0.

Question 3

Perry acquired raw land as an investment in 1996.The land cost $60,000.In 2013,the land is sold for a total sales price of $120,000,consisting of $10,000 cash and the buyer's note for $110,000.Assume that Perry uses the installment method to recognize the gain and receives only the $10,000 down payment in the year of sale.How much gain should Perry recognize in 2013?

Accepted Answer

The gain recognized in 2013 is calculated by determining the gross profit percentage and applying it to the cash received. The gross profit is $60,000 ($120,000 - $60,000), and the gross profit percentage is 50% ($60,000/$120,000). Applying this percentage to the $10,000 cash received results in a recognized gain of $5,000 (50% of $10,000).

Question 4

Which of the following statements is correct with respect to the deferral provisions of the Tax Code?

Accepted Answer

The answer of Which of the following statements is correct...

Question 5

Simonne,a single taxpayer,bought her home in La Jolla 25 years ago for $45,000.She has lived continuously in the home since she purchased it.In December,2013,she sells her home for $405,000.What is Simonne's taxable gain on the sale?

Accepted Answer

The answer of Simonne,a single taxpayer,bought her home in La...

Question 6

In 2013,Tim sells Section 1245 property for $28,000 that he had purchased in 2007.Tim has claimed $5,000 in depreciation on the property and originally purchased it for $15,000.How much of the gain is taxable as ordinary income?

Accepted Answer

Section 1245 property requires that all depreciation taken on the property be recaptured as ordinary income upon sale. Tim claimed $5,000 in depreciation, so $5,000 of the gain is taxable as ordinary income.

Question 7

Terry has a casualty gain of $1,000 and a casualty loss of $5,400,before the $100 floor and before the adjusted gross income limitation.The gain and loss were the result of two separate casualties occurring during 2013 and both properties were personal-use assets.If Terry itemizes deductions on her 2013 return and has adjusted gross income of $25,000,what is Terry's gain or net itemized deduction as a result of these casualties?

Accepted Answer

The answer of Terry has a casualty gain of $1,000...

Question 8

Which of the following statements is true?

Accepted Answer

None of the statements are true. A personal residence does not qualify for a like-kind exchange, the exclusion of realized gain from the sale of a personal residence is subject to certain limitations and requirements, and there is no one-time election available for taxpayers 55 years of age or older to exclude all realized gain from the sale of their personal residence.

Question 9

Simon sold investment property 2 years ago for $750.Simon's basis in the property was $300.Simon is receiving $150 per year from the buyer.Simon reports this income on the installment method.If Simon collects $150 in principal during the current year,how much gain should he report from the sale for the year?

Accepted Answer

The gain that Simon recognizes each year is based on the proportion of the payment that represents gain. To calculate the portion of the payment that represents gain, we divide Simon's gain on the sale ($450) by the total amount he expects to receive in payments ($1050):

$450 ÷ $1050 = 0.43

So, 43% of each payment Simon receives represents gain. Therefore, if Simon collects $150 in principal during the current year, he should report a gain of:

$150 x 0.43 = $64.50

However, because Simon previously reported $75 of gain on this sale, he will need to reduce the gain recognized in the current year by that amount:

$64.50 - $75 = ($10.50)

Since this amount is negative, Simon would not report any gain on the sale in the current year.

Question 10

Johnny owned a gas station with an adjusted basis of $300,000.After it was destroyed in a fire,he received $600,000 from the insurance company.Within the next year,he bought a new gas station for $480,000.What is Johnny's taxable gain and what is the basis in the new building?

Accepted Answer

Johnny's taxable gain is $120,000 ($600,000 - $300,000 - $480,000). His basis in the new building is $300,000 ($480,000 - $120,000).

Question 11

Tim sells land to Brad for $75,000.Tim originally purchased the land for $50,000.Brad agrees to pay Tim five annual installments of $15,000 each.In year three,Brad makes his third installment of $15,000.How much taxable gain will Tim have in year three?

Accepted Answer

Tim's total gain is $25,000 ($75,000 - $50,000). The gain is recognized proportionally as payments are received. Each installment is $15,000, and the gain percentage is 33.33% ($25,000 gain / $75,000 total payments). In year three, the taxable gain is $5,000 (33.33% of $15,000).

Question 12

Emily sold the following investments during the year: $\quad$$\quad$stock  $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$date purchased  $\quad$$\quad$$\quad$date sold   $\quad$$\quad$data cost price $\quad$ data cost basis   $\quad$sales
a.$1,000 \text { shares Dot Com Co. } \quad \quad 03-21-2002 \quad 02-04-2013 \quad \$ 20,000 \quad \$ 5,000$
b.$500 \text { shares Big Box Store } \quad\quad\quad 05-19-2012 \quad 01-22-2013 \quad \$ 8,200 \quad \$ 7,500$
c.$300 \text { shares Lotta Fun, Inc. } \quad \quad 10-02-2012 \quad 09-21-2013 \quad \$ 3,000 \quad \$ 4,500$
d.$700 \text { shares Local Gas Co. } \quad\quad\quad 06-17-2012 \quad 11-11-2013 \quad \$ 14,000 \quad \$ 17,000$ For each stock,calculate the amount and the nature of the gain or loss.

Accepted Answer

The answer of Emily sold the following investments during the...

Question 13

In January 2013,Keyaki Construction Company exchanged an old truck,which cost $54,000 and had accumulated depreciation of $18,000,for a new truck having a fair market value of $65,000.In connection with the exchange,Keyaki paid $35,000 in cash.What is the tax basis of the new truck?

Accepted Answer

The tax basis of the new truck is calculated as follows:
Fair market value of new truck: $65,000
Cash paid: -$35,000
Carrying amount of old truck: -$36,000 ($54,000 cost - $18,000 accumulated depreciation)
Taxable gain on exchange: $4,000 ($65,000 fair market value - $61,000 adjusted basis)
Tax basis of new truck: $71,000 ($65,000 fair market value + $6,000 taxable gain)

Question 14

Sally acquired an apartment building in 1998 for $150,000 and sold it for $400,000 in 2013.At the time of the sale,there is $55,000 of accumulated straight-line depreciation on the apartment building.Assuming Sally is in the 35 percent tax bracket for ordinary income,how much of her gain is taxed at 15 percent?

Accepted Answer

The gain on the sale is $400,000 - ($150,000 - $55,000) = $305,000. The $55,000 depreciation is taxed at a higher rate, so the remaining $250,000 is taxed at 15%.

Question 15

Joseph exchanged land tax basis of $36,000),that he had held for 4 years as an investment,for similar land valued at $40,000 which was owned by Adrian.In connection with this transaction,Adrian assumed Joseph's $12,000 mortgage.As a result of this transaction Joseph should report a long-term capital gain of:

Accepted Answer

Joseph's realized gain is calculated as the fair market value of the land received ($40,000) plus the mortgage assumed by Adrian ($12,000), minus the basis of the land given up ($36,000). This results in a gain of $16,000. However, since this is a like-kind exchange, the recognized gain is limited to the boot received, which is the mortgage assumed by Adrian ($12,000). Thus, Joseph should report a long-term capital gain of $12,000.

Question 16

Which of the following is true of a like-kind exchange:

Accepted Answer

To qualify for a like-kind exchange under Section 1031 of the Internal Revenue Code, the properties exchanged must be of the same nature or character, regardless of the grade or quality. Personal residences do not qualify as like-kind property, so choice B is the correct answer. Choices A and C are incorrect because cash cannot be exchanged, and the properties exchanged must be real property or certain types of personal property, such as rental properties or business equipment. Choice D is incorrect because the holding period for capital gains treatment carries over from the property that was exchanged, and does not start anew.

Question 17

Casualty gains and losses from business or investment property:

Accepted Answer

Casualty gains and losses from business or investment property may be treated differently depending on whether the property has been held 1 year or less or has been held over 1 year. If held for 1 year or less, the gain or loss is treated as ordinary income or loss. If held for over 1 year, the gain or loss is treated as a capital gain or loss.

Question 18

Which one of the following qualifies as a like-kind exchange?

Accepted Answer

A like-kind exchange occurs when one business or investment asset is exchanged for another business or investment asset that is similar or related in nature, such as a truck for a truck. Option D is the only choice where both assets are vehicles used for business purposes and therefore qualify as like-kind property. Options A, B and C do not meet the requirements for like-kind exchanges.

Question 19

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 December,2013 for $340,000,what is their taxable gain on a joint tax return?

Accepted Answer

Jerry and Debbie can exclude up to $500,000 of gain on the sale of their primary residence if they file a joint tax return and meet the ownership and use tests. Jerry owned and lived in the house for at least 2 of the last 5 years, and Debbie has lived there for at least 2 years. Therefore, their gain of $280,000 ($340,000 - $60,000) is fully excluded, resulting in a taxable gain of $0.

Question 20

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$\quad$____
b. Ford Motor Credit Company bond held by aninvestor
c. A baseball for sale at Sports.com$\quad$____
d. J.K. Rowling's personal copy of her original manuscript of
Harry Potter and the Sorcerer's Stone
e. An antique grand father clock inherited from the taxpayer's aunt$\quad$____

Accepted Answer

The answer of If the following are capital assets,mark with...

Quiz 8: Capital Gains and Losses