Question 1

Patrice sells a parcel of land for $50,000 cash and the buyer assumes Patrice's liability of $7,000 on the land.Patrice's basis in the land is $40,000.What is the gain or loss she will recognize on the sale?

Accepted Answer

To calculate the gain or loss on the sale of the land, we need to calculate the amount realized and subtract it from the basis.

Amount realized = Cash received + Liability assumed by buyer
Amount realized = $50,000 + $7,000 = $57,000

Gain or loss = Amount realized - Basis
Gain or loss = $57,000 - $40,000 = $17,000 gain

Therefore, Patrice will recognize a $17,000 gain on the sale. The correct answer is D.

Question 2

Which one of the following is Section 1231 property?

Accepted Answer

Section 1231 property includes depreciable tangible property used in a trade or business, real property used in a trade or business, and some intangible property such as patents and goodwill. A building used in a trade or business is an example of depreciable tangible property and therefore qualifies as Section 1231 property. Accounts receivable and inventory are not depreciable and copyrights are considered intangible assets not eligible for Section 1231 treatment.

Question 3

The gain or loss on land sold within one year of purchase is recorded on which one of the following forms or schedules?

Accepted Answer

The answer of The gain or loss on land sold...

Question 4

A taxpayer purchased land in 2008 for $85,000 and sold it in 2017 for $75,000 cash.The buyer also assumed the mortgage of $5,000.What is the amount of gain/loss on the sale of the land?

Accepted Answer

The taxpayer has a loss of $5,000 on the sale of the land. The taxpayer's basis in the land is $85,000, and the taxpayer sold the land for $75,000 cash plus the assumption of a $5,000 mortgage. The taxpayer's total proceeds from the sale are $80,000, which is $5,000 less than the taxpayer's basis in the land.

Question 5

Patty and Rich,married filing jointly,have $385,000 in MAGI and $90,000 of net investment income (NII).They will pay a surtax of:

Accepted Answer

Patty and Rich are subject to the Net Investment Income Tax (NIIT), which is a 3.8% surtax on their NII. To calculate the NIIT, they must compare their MAGI to the threshold amount for their filing status, which is $250,000 for married filing jointly. Since their MAGI is $385,000, they are over the threshold by $135,000.

The NIIT is calculated as 3.8% of the lesser of their NII or the amount by which their MAGI exceeds the threshold. In this case, their NII of $90,000 is less than the $135,000 amount by which their MAGI exceeds the threshold. Therefore, the NIIT is 3.8% of $90,000, which equals $3,420.

Therefore, the correct answer is C, they will pay a surtax of $3,420.

Question 6

Currently,the top tax rates for an individual with long-term capital gains on the sale of stock and on the sales of collectibles are:

Accepted Answer

According to the current tax laws, the top tax rate for long-term capital gains on the sale of stock is 20%, and for the sales of collectibles, it is 28%. Hence, the correct choice is C. Choice A is incorrect because the 0% rate is only applicable to individuals in the 10% or 12% tax bracket. Choice B is also incorrect because the 25% rate is not applicable to long-term capital gains on the sale of stock. Therefore, C is the best choice.

Question 7

A taxpayer has 6 separate capital gain transactions.Four of them are long-term and two are short-term transactions.Two of the long-term transactions have box 3 from Form 1099-B checked,one does not have box 3 from Form 1099-B checked,and there was no 1099-B received for one of the long-term transactions.One short-term transaction has box 3 from a 1099-B checked and the other transaction does not have box 3 from a 1099-B checked.How many Form 8949 must the taxpayer complete?

Accepted Answer

The taxpayer has six separate capital gain transactions, so they will need to complete at least six lines on Form 8949. However, the fact that some transactions have box 3 from Form 1099-B checked and some do not means that they will need to complete multiple parts of Form 8949.

Specifically, for the transactions with box 3 from Form 1099-B checked, the taxpayer will need to complete Part I of Form 8949. For the transactions without box 3 from Form 1099-B checked, the taxpayer will need to complete Part II of Form 8949.

Therefore, the taxpayer will need to complete Part I for the two long-term transactions with box 3 from Form 1099-B checked, Part II for the one long-term transaction without box 3 from Form 1099-B checked, and Part I for the one short-term transaction with box 3 from Form 1099-B checked. In total, this requires completing three parts of Form 8949.

Question 8

Lourdes,a sole proprietor,collected $8,650 on November 21,2017 on some of her outstanding receivables.Her basis in these receivables was $0.What is the gain or loss Lourdes recognizes for 2017?

Accepted Answer

Since Lourdes is collecting on receivables in the normal course of her business, there is no gain or loss recognized. The collection of receivables is considered ordinary income, not a capital gain or loss.

Question 9

On which form or schedule is the selling of inventory related to the course of business recorded for a sole proprietor?

Accepted Answer

The selling of inventory related to the course of business for a sole proprietor is recorded on Schedule C of their personal tax return. Form 4797 is used to report the sale of business property or assets, Schedule SE is for self-employment tax, and Schedule D is for reporting capital gains and losses.

Question 10

Juanita is a sole proprietor who has some outstanding receivables she wishes to sell.The receivables have a $16,000 FMV and a basis of $10,000.Juanita sells the receivables for $12,500.What gain or loss does Juanita recognize on the sale?

Accepted Answer

The gain recognized by Juanita is calculated as the difference between the selling price ($12,500) and the basis of the receivables ($10,000), which equals $2,500. Since the receivables are considered ordinary assets in the course of her business, the gain is classified as ordinary.

Question 11

What is the basis of artistic works that have been gifted to another by the creator?

Accepted Answer

Artistic works are not capital assets for the creator or the recipient of the artistic works if given as a gift.

Question 12

Caesar,a single taxpayer,has wage income of $75,000.He also has a short-term capital loss of $5,000,a short-term capital gain of $2,000,and a long-term capital gain of $3,000.What is Caesar's AGI for 2017?

Accepted Answer

Caesar's AGI includes his wage income of $75,000. The capital gains and losses net to $0 ($2,000 short-term gain + $3,000 long-term gain - $5,000 short-term loss), so they do not affect his AGI.

Question 13

Glenn sells a piece of equipment used in his business for $31,500.The equipment was purchased on July 1,2015,at a cost of $22,000.Glenn has taken $6,600 of depreciation on the equipment.What are the amount and classification of the gain on the sale by Glenn?

Accepted Answer

The gain on the sale is calculated by subtracting the adjusted basis (cost minus accumulated depreciation) from the sale price. The adjusted basis is $22,000 - $6,600 = $15,400. The sale price is $31,500, so the total gain is $31,500 - $15,400 = $16,100. Under Section 1245, the portion of the gain equal to the depreciation taken ($6,600) is treated as ordinary income. The remaining gain ($16,100 - $6,600 = $9,500) is treated as Section 1231 gain, which can be taxed as capital gains if certain conditions are met.

Question 14

Hiroko,a single taxpayer,has wage income of $80,000.In addition,she has $5,000 in long-term capital losses,$4,000 in long-term capital gains,and $4,000 in short-term capital gains.What is Hiroko's AGI for 2017?

Accepted Answer

First, we need to calculate Hiroko's net capital loss by subtracting her long-term capital losses from her long-term capital gains: 
$4,000 (long-term capital gains) - $5,000 (long-term capital losses) = -$1,000 (net long-term capital loss).

Next, we can calculate her total capital gain by adding her net long-term capital loss to her short-term capital gains: 
-$1,000 (net long-term capital loss) + $4,000 (short-term capital gains) = $3,000 (total capital gain).

Finally, we can calculate her AGI by subtracting her total capital gain from her wage income: 
$80,000 (wage income) - $3,000 (total capital gain) = $77,000 (AGI).

However, since the maximum capital loss that can be deducted in a single tax year is $3,000, Hiroko can only use $3,000 of her capital loss to offset her ordinary income. Therefore, her AGI is: 
$80,000 (wage income) - $3,000 (capital loss deduction) = $77,000 (AGI).

Answer choice C is the correct answer.

Question 15

Gilberto invested in a mid-size local company with gross assets of $16,000,000.Gilberto purchased 1,000 shares for $48,000 in 2000.In 2017,Gilberto sold the stock for $78,000.How is the gain treated for tax purposes?

Accepted Answer

The answer of Gilberto invested in a mid-size local company...

Question 16

Before the tax implications of asset sales can be determined,which of the following must be determined?

Accepted Answer

All three factors - classification of assets, length of ownership, and depreciation status - can affect the tax implications of asset sales. It is important to consider all of these factors before determining the tax consequences of selling assets.

Question 17

Which of the following statements is correct regarding the sale of ordinary assets,as discussed in this chapter?

Accepted Answer

According to the chapter, the sale of an asset outside the normal course of a trade or business is considered as a sale of an ordinary asset. This means that option A is incorrect since inventory is not considered an ordinary asset, option C is incorrect as business property held for more than a year is considered a long-term asset and not an ordinary asset, and option D is incorrect as the holding period of the property is not the determining factor in categorizing it as an ordinary asset.

Question 18

Marquez purchased some equipment for $58,750 on August 15,2016.He decided he did not need the equipment so he sold it on June 13,2017 for $56,500.The equipment was subject to depreciation of $6,964 for 2016 and 2017.What gain or loss will Marquez recognize on the sale of the equipment?

Accepted Answer

Marquez will recognize a $4,714 ordinary gain. This is calculated by taking the sale price of $56,500 and subtracting both the purchase price of $58,750 and the depreciation of $6,964, then adding back the depreciation since it reduces the equipment's basis. The correct calculation is $56,500 - ($58,750 - $6,964) = $4,714. This gain is considered ordinary because it is related to a business asset.

Question 19

Which one of the following is a capital asset?

Accepted Answer

The answer of Which one of the following is a...

Question 20

Section 1231 property is:

Accepted Answer

Section 1231 property is defined as property used in a trade or business that may or may not be subject to depreciation and is held for more than one year. This includes assets such as equipment, vehicles, and real estate. The holding period requirement is important because it distinguishes Section 1231 property from ordinary income property, which is held for less than one year and subject to higher tax rates.

Quiz 7: Capital Gains and Other Sales of Property Schedule D and Form 4797