Fundamentals of Taxation

Business

Quiz 7 :

Capital Gains and Other Sales of Property

Quiz 7 :

Capital Gains and Other Sales of Property

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Does the length of time a capital asset is held affect the gain or loss on the sale of the asset? Explain.
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The capital property is any type of asset employed for personal or investment purposes. An example of capital property is investment in bonds or stocks.
The duration of time held doesn't affect the quantity of profit or loss except it affects the tax rate applied on the profit. Only the long term capital profits get special tax treatment.
So, it is clear that the time length held
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What is a §1231 asset? How are gains and losses from the sale of §1231 assets treated? On what tax form are gains and losses from the sale of §1231 assets reported?
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IRC §1231 property is depreciable and nondepreciable property (including real property) used in a trade or business and held for more than 1 year. Timber, coal, domestic iron ore and certain livestock held for breeding, dairy, or sporting purposes are also considered §1231 property. The most typical examples of §1231 assets are machinery and equipment, buildings, and land used in a business. When a §1231 asset is sold, the gain may be either ordinary or capital. These gains (and/or losses) on the sale are initially reported on Form 4797.

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What determines whether land is a capital asset? How else can land be classified?
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Every type of asset can be categorized into three classes which are ordinary income asset, capital asset, and business asset. Classification of assets can help in determining the rates of tax return on profits.
Land possessed for an investment is considered as capital asset. But, in case the land is used for the purpose of business or trade, it is considered as business or
img trade property. In case the land is kept for resale by real estate agent, it is considered as ordinary income asset.
Hence, land is considered as a different property
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Discuss the netting process of capital gains and losses. What are the possible outcomes of the netting process, and how would each situation be taxed?
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Janis Blakeley is single and lives at 5411 Melbourne Avenue, Chicago, IL, 60455. Her SSN is 412-34-5670. Using the following information, complete her tax return for 2010: img img Janis has the following itemized deductions: img Janis has the following investments: img Janis received a gift of 2,000 shares of FNP Inc. stock from her Aunt Jane on January 19, 2010. The basis of the shares to Aunt Jane was $3,300, and they had a FMV of $3,600 on the date of the gift. Aunt Jane purchased the stock on December 30, 2009. On June 30, 2010, Janis sold all the shares for $5,000. Janis is an avid stamp collector and purchased a rare stamp on March 20, 2005, for $4,000. She sold the stamp for $6,000 on April 8, 2010. Prepare Form 1040 and all related schedules, forms, and worksheets for 2010. Janis does not donate to the Presidential Election Campaign.
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What is a §1202 gain, and how is it taxed?
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Capital gains can be taxed at several different rates. What determines the rate?
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In what ways can a capital asset be acquired, and how is the holding period determined for each method of acquisition?
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What is a capital asset ? What factors affect the determination of whether an asset is classified as a capital asset?
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Jeffery Norville is a single taxpayer. His SSN is 412-34-5670, and he lives at 5037 Circle Court, Crestview, IL, 60543. His W-2 for 2010 shows gross wages of $86,500 with $5,363 of social security and $1,254.50 of Medicare taxes withheld. He has $17,747 of federal withholding and $2,595 in state withholding. Jeffery does not itemize. He had the following stock transactions for the year: img He also has interest from a savings account with Local Neighborhood Bank of $168 and a dividend from a Form 1099-DIV of $1,389 in ordinary dividends, of which $1,106 are considered qualified dividends. Prepare a 2010 Form 1040 for Jeffery and all related schedules and forms.
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When we determine whether an asset is a §1231 asset, does the length of time the asset is held affect the classification? Explain.
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What is a §1245 asset? How is it related to a §1231 asset?
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How are the terms basis, adjusted basis , and fair market value defined as they apply to the calculation of gains and losses?
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How can the gain from the sale of property be characterized? Why is it important to correctly characterize the gain on the sale of property?
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What factors affect the taxability of capital gains and losses?
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Nuga and Muriel Atewon are married and file a joint return in 2010. They live at 12345 Hemenway Avenue, Marlboro, MA, 01752. Nuga is a self-employed tax preparer and his SSN is 412-34-5670. Muriel is a manager and her SSN is 412-34-5671. They had the following income and expenses for the year: Muriel's W-2: img Nuga was the sole proprietor of NAMA Tax Service, located at 123 Main Street, Marlboro, MA, 01752, and his business code is 541213. He had the following revenue and expenses: img Nuga had the following business assets: • Office Furniture: Purchased for $4,950 on May 20, 2008. The equipment is being depreciated over 7-year MACRS 200% declining balance. Nuga sold it on May 15, 2010 for $4,000. • Office Equipment: Purchased a copier for $13,800 on January 10, 2010. The copier is being depreciated over 5-year MACRS 200% declining balance. Nuga makes no elections for §179. • Computer Equipment: Purchased a computer system for $8,900 on January 2, 2009. The computer is being depreciated over 5-year MACRS 200% declining balance. Nuga makes no elections for §179. Nuga and Muriel had the following other sources of income and deductions: • Interest from a CD in the amount of $1,385 • Long-term loss carryover from 2009 of $10,000 • Real estate taxes of $8,042 • Home mortgage interest of $14,458 • Charitable contributions in cash over the year of $1,800; all receipts and acknowledgments were received from the charitable organizations. Prepare Form 1040 and all related schedules, forms, and worksheets for 2010 for Nuga and Muriel Atewon. The Atewons do not donate to the Presidential Election Campaign.
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What is meant by the terms realized gain (loss) and recognized gain (loss) as they apply to the sale of assets by a taxpayer?
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What are the different classifications of capital assets? Define each classification and explain the difference in the preferential tax treatment (the rate at which the gains are taxed).
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How is a net capital loss treated? Include in your answer a discussion of how a net capital loss is treated in relation to other income.
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Discuss the concept of ordinary income property and give some examples.
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