Question 1

Beatrice,a single taxpayer,has W-2 income of $93,700.She also has a short-term capital loss of $7,000,a short-term capital gain of $1,000,and a long-term capital gain of $2,000.What is Yolanda's AGI for 2017?

Accepted Answer

The answer of Beatrice,a single taxpayer,has W-2 income of $93,700.She...

Question 2

In 2014,Moana purchased land for $99,500 for use in her business.She sold it in 2017 for $115,900.What is the gain on the sale before any netting?

Accepted Answer

The gain on the sale is calculated as follows:
Sale price ($115,900) - Purchase price ($99,500) = $16,400. Since the property was held for use in Moana's business, the gain is considered a Section 1231 gain.

Question 3

Gabriella,a single taxpayer,has wage income of $160,000.In addition,she has $7,000 in long-term capital losses,$1,000 in long-term capital gains,$3,000 in short-term capital gains,and $1,000 in short-term losses.What is Gabriella's AGI for 2017?

Accepted Answer

AGI (Adjusted Gross Income) is calculated by taking gross income and subtracting specific deductions, such as contributions to a traditional IRA or alimony payments. In this case:

Gross income = $160,000 + $1,000 (long-term capital gains) + $2,000 (short-term capital gains) - $7,000 (long-term capital losses) - $1,000 (short-term losses) = $155,000
AGI = Gross income - deductions 
Since no information regarding Gabriella's deductions is provided in the question, we assume that there are no additional deductions. Therefore:

AGI = $155,000

The closest option is B ($157,000) which is the answer we choose.

Question 4

Tanisha buys a sculpture from a collector for resale in her gallery for $8,400.She sold it 15 months later for $12,500.What are the nature and amount of the gain on the sale of the sculpture?

Accepted Answer

The answer of Tanisha buys a sculpture from a collector...

Question 5

Keiko sells a piece of equipment used in her business for $14,853 on August 10,2017.The equipment was purchased on January 4,2016 at a cost of $12,849.Keiko has taken $3,855 of depreciation on the equipment.What is the amount and classification of the gain on the sale by Keiko?

Accepted Answer

To determine the gain on the sale, we need to calculate the adjusted basis of the equipment, which is calculated as follows:
Cost of Equipment = $12,849
Less: Accumulated Depreciation = $3,855
Adjusted Basis = $8,994

The amount realized on the sale is $14,853, and the adjusted basis is $8,994. Therefore, the gain on the sale is $5,859 ($14,853 - $8,994).

This gain has two components: ordinary income under Section 1245 and Section 1231 gain.

The ordinary income under Section 1245 is calculated as the lesser of the depreciation taken or the gain on the sale. In this case, the depreciation taken is $3,855, which is less than the gain on the sale of $5,859. Therefore, $3,855 is classified as ordinary income under Section 1245.

The remaining amount of gain is classified as Section 1231 gain, which is capital gain.

Therefore, the correct answer is C.

Question 6

Heidi invested in a mid-sized local company with gross assets of $17,000,000.Heidi purchased 2,000 shares for $44,000 in 2000.In 2017,Heidi sold the stock for $84,000.How is the gain treated for tax purposes?

Accepted Answer

The answer of Heidi invested in a mid-sized local company...

Question 7

Which of the following is a Section 1221 asset?

Accepted Answer

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

Question 8

All of the following statements regarding the definition of Section 1231 are incorrect except:

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 held for more than one year. This definition allows for a broad range of property types, including both depreciable assets and land, which is not depreciable, as long as they are used in the business and held for the requisite period.

Question 9

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

Accepted Answer

The sale of an asset held for less than a year outside the normal course of a trade or business is considered a sale of an ordinary asset, as opposed to a capital asset. The other options are incorrect because not all business property and inventory sales are considered ordinary assets, and the holding period for business property does affect the classification of the sale.

Question 10

Aneta sold an apartment building for $713,470 in 2017.She purchased the building in 2011 for $600,000 and has taken $151,806 in depreciation on the building.Assuming Aneta is in the 33% tax bracket,how is her gain taxed?

Accepted Answer

To determine the tax on the gain, we first need to calculate the basis for the property. Aneta purchased the building for $600,000 and took $151,806 in depreciation, so her adjusted basis is $448,194 ($600,000 - $151,806).

The gain on the sale is the selling price minus the adjusted basis, or $713,470 - $448,194 = $265,276.

Since Aneta is in the 33% tax bracket, the gain will be taxed at a maximum rate of 25%. The $265,276 gain will be split into two portions - the portion subject to ordinary income tax (depreciation recapture) and the portion subject to capital gains tax.

The depreciation recapture portion is calculated as the lesser of the depreciation taken or the gain, which in this case is $151,806. This portion will be taxed at a maximum rate of 25%, or $37,951.50.

The remaining gain of $113,470 will be taxed at a maximum rate of 15%, or $17,020.50.

Therefore, the total tax on the gain will be $37,951.50 + $17,020.50 = $54,972.

The best choice is D because it correctly calculates the tax on the gain by splitting it into two portions and using the appropriate tax rates for each portion.

Question 11

Samson purchased some equipment for $86,749 on March 15,2016.He decided he did not need the equipment and sold it on March 10,2017 for $82,000.The equipment was subject to depreciation of $16,851 for 2016 and 2017.What gain or loss will Samson recognize on the sale of the equipment?

Accepted Answer

The answer of Samson purchased some equipment for $86,749 on...

Question 12

A capital asset includes all of the following except:

Accepted Answer

A capital asset includes property such as a taxpayer's home, inherited property, and real estate held for investment. However, real estate used in the taxpayer's trade or business is not considered a capital asset; instead, it is typically classified as a business asset, subject to different tax treatment.

Question 13

In 2017,Camilo had a net capital loss of $5,650 and taxable income of $110,000.What is Camilo's loss carryforward to 2018?

Accepted Answer

Camilo can deduct up to $3,000 of the net capital loss against his taxable income in 2017. The remaining $2,650 ($5,650 - $3,000) can be carried forward to 2018.

Question 14

Greg sold some equipment for $72,510 on June 13,2017.Greg had originally purchased the equipment for $86,750 on November 21,2016.The equipment was subject to depreciation of $17,350.What gain or loss will Greg recognize on the sale?

Accepted Answer

The gain is calculated as the selling price ($72,510) minus the adjusted basis (original purchase price $86,750 minus depreciation $17,350), resulting in a $3,110 ordinary gain.

Question 15

Sammy sells a piece of specialized equipment (with a high resale value)used in his business for $41,650 on September 10,2017.The equipment was purchased on May 20,2014 for $32,000.Sammy has taken $9,200 of depreciation on the equipment.What are the amount and classification of the gain on the sale by Sammy?

Accepted Answer

To calculate the gain, we need to determine the adjusted basis of the equipment, which is the original cost of $32,000 minus the accumulated depreciation of $9,200, resulting in an adjusted basis of $22,800.

The selling price of $41,650 exceeds the adjusted basis of $22,800, resulting in a gain of $18,850.

Since the equipment is classified as Section 1245 property (property that is or has been subject to depreciation), the portion of the gain attributable to the depreciation allowed or allowable (which is $9,200) is considered ordinary income under Section 1245, and the remaining gain of $9,650 is classified as Section 1231 gain (gain from the sale of depreciable property used in a trade or business).

Therefore, the correct answer is D, which shows that $9,200 of the gain is ordinary income under Section 1245, and $9,650 is Section 1231 gain.

Question 16

Demetrius had a $4,000 short-term loss and a $3,000 long-term gain from a collectible,a $2,000 gain from Section 1250 unrecaptured property.What is the netting effect of these gains and losses on his 1040?

Accepted Answer

According to the IRS rules, collectibles gains and losses are netted separately from other types of gains and losses. Therefore, Demetrius' $4,000 short-term loss will first offset his $3,000 collectible long-term gain, leaving a remaining $1,000 short-term loss. This remaining $1,000 loss will then be offset against his $2,000 Section 1250 unrecaptured gain, leaving a net gain of $1,000 that will be taxed at a 25% rate.

Question 17

Otis bought a 2-unit apartment building in July 2010 for $330,000 and sold it for $400,000 on December 20,2017.At the time of sale there was $83,493 of accumulated straight-line depreciation on the apartment building.Assuming Otis is in the 33% tax bracket,how much of the gain will be taxed at 25%?

Accepted Answer

$83,493 of the gain will be taxed at 25% because this amount represents the accumulated depreciation on the property, which is recaptured upon sale and taxed at a special 25% rate for real estate.

Question 18

Which one of the following is a capital asset?

Accepted Answer

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

Question 19

Leslie buys a painting from a collector for resale in her gallery.She purchased the painting for $5,000 and sold it 24 months later for $9,000.What are the nature and the amount of the gain on the sale?

Accepted Answer

Since Leslie bought the painting for resale in her gallery, this transaction falls under ordinary income rather than capital gains. The gain on the sale is the difference between the selling price ($9,000) and the purchase price ($5,000), which is $4,000. As it is ordinary income, it is subject to ordinary income tax rates. Therefore, choice C is the correct answer.

Question 20

Jack purchased 100 shares of Ford stock on April 22,2016.If he sells the stock on April 21,2017,what is the character of the sale?

Accepted Answer

The holding period for preferential tax treatment on gains from stock sales is more than one year. Since Jack sold the stock exactly one year after purchasing it (not more than one year), the sale does not qualify for preferential tax treatment.

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