Question 1

Sammy sells a piece of specialized equipment with a high resale value)used in his business for $41,650 on September 10,2016.The equipment was purchased on May 20,2013 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 determine the gain, we need to calculate the adjusted basis of the equipment first. 
- Adjusted basis = Purchase price - Accumulated depreciation. 
- Adjusted basis = $32,000 - $9,200 = $22,800.
- Selling price - Adjusted basis = Gain on sale. 
- $41,650 - $22,800 = $18,850.
- Since the equipment is specialized, it is considered Section 1245 property. 
- Therefore, $9,200 of the gain is taxed as ordinary income under Section 1245, and the remaining $9,650 is taxed as Section 1231 gain. 
- Thus, the correct choice is C.

Question 2

Keiko sells a piece of equipment used in her business for $14,853 on August 10,2016.The equipment was purchased on January 4,2015 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

The gain on the sale is calculated as the selling price ($14,853) minus the adjusted basis (original cost $12,849 minus depreciation $3,855), resulting in a gain of $5,859. Under Section 1245, the gain is ordinary income to the extent of depreciation taken ($3,855), and the remaining $2,004 is 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 2016?

Accepted Answer

AGI = Wage income + Net capital gain= $160,000 + ($1,000 + $3,000 - $7,000 - $1,000)= $160,000 - $2,000= $158,000

Question 4

Yolanda,a single taxpayer,has W-2 income of $87,500.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 2016?

Accepted Answer

To calculate Yolanda's AGI, we need to subtract her capital losses from her capital gains. So, her net short-term capital loss is $6,000 ($7,000 loss - $1,000 gain) and her net capital gain is $2,000. Therefore, her total capital gain for tax purposes is $2,000 - $6,000 = -$4,000. She can use up to $3,000 of the capital loss to offset her other income, leaving a carryforward loss of $1,000 to use in future years.

So, Yolanda's AGI is:
$87,500 (W-2 income) - $3,000 (capital loss used to offset income) - $1,000 (standard deduction for a single taxpayer) = $83,500.

Therefore, the correct answer is C, $84,500.

Question 5

Greg sold some equipment for $72,510 on June 13,2016.Greg had originally purchased the equipment for $86,750 on November 21,2015.The equipment was subject to depreciation of $17,350.What gain or loss will Greg recognize on the sale?

Accepted Answer

The answer of Greg sold some equipment for $72,510 on...

Question 6

Tamiko buys a painting from a collector for resale in her gallery for $4,500.She sold it 15 months later for $6,500.What are the nature and amount of the gain on the sale of the painting?

Accepted Answer

The answer of Tamiko buys a painting from a collector...

Question 7

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

Accepted Answer

Section 1231 property includes property used in a trade or business that may or may not be subject to depreciation and is held for more than one year.

Question 8

In 2016,Carmen had a net capital loss of $10,000 and taxable income of $100,000.What is Carmen's loss carryforward to 2017?

Accepted Answer

Carmen can deduct up to $3,000 of her net capital loss against her ordinary income in 2016. Therefore, she can carry forward $7,000 ($10,000 - $3,000) to 2017.

Question 9

Otis bought a 2-unit apartment building in July 2009 for $330,000 and sold it for $400,000 on December 20,2016.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

The accumulated depreciation of $83,493 is subject to a 25% tax rate as it is recaptured under the IRS rules for real estate.

Question 10

Which one of the following is a capital asset?

Accepted Answer

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

Question 11

Samson purchased some equipment for $86,749 on March 15,2015.He decided he did not need the equipment and sold it on March 10,2016 for $82,000.The equipment was subject to depreciation of $16,851 for 2015 and 2016.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

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 and outside the normal course of business is considered a sale of an ordinary asset. Other options are incorrect as the sale of business property held for more than a year is considered a sale of a long-term capital asset, any sale of business property is not necessarily a sale of an ordinary asset, and the sale of inventory is considered a sale of inventory and not an ordinary asset.

Question 13

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 tax rules, collectibles are subject to a higher capital gains tax rate, and short-term capital losses should be offset first against any capital gains. Therefore, the $4,000 short-term loss should be applied first to the $3,000 collectible long-term gain, leaving a remaining $1,000 capital gain which will be taxed at the collectible gain rate (28%). Then, the $2,000 unrecaptured Section 1250 gain will be taxed at the same rate as other long-term gains (25%). Therefore, the netting effect of these gains and losses is a $1,000 long-term capital gain taxed at 28%, and a $2,000 long-term capital gain taxed at 25%.

Question 14

A capital asset includes all of the following except:

Accepted Answer

Real estate used in the taxpayer's trade or business is not considered a capital asset; it is classified as a business asset.

Question 15

Which of the following is a Section 1221 asset?

Accepted Answer

Section 1221 assets are capital assets, which include investment properties like gold, silver, or other metals, but exclude inventory, property used in a trade or business, and self-created works of art.

Question 16

Leslie buys a sculpture from a collector for resale in her gallery.She purchased the sculpture 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

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

Question 17

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 2016,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 18

Jack purchased 100 shares of Ford stock on April 22,2015.If he sells the stock on April 21,2016,what is the character of the sale?

Accepted Answer

The holding period requirement for preferential treatment on the sale of stock is more than one year. Therefore, regardless of whether it produces a gain or a loss, the transaction does not qualify for preferential treatment because the stock was held for less than a year.

Question 19

In 2013,Joe purchased land for $83,500 for use in his business.He sold it in 2016 for $110,000.What is the gain on the sale before any netting?

Accepted Answer

The gain on the sale would be calculated as follows:
Sale price: $110,000
Less: Basis (purchase price): $83,500
Gain before any netting: $26,500
Since the property was used in his business, it would be considered a Section 1231 asset. Therefore, the gain would be classified as a Section 1231 gain.

Question 20

Aneta sold an apartment building for $713,470 in 2016.She purchased the building in 2010 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

The gain from depreciation recapture ($151,806) is taxed at 25%, and the remaining gain ($113,470) is taxed at the capital gains rate of 15%.

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