Question 1

Sara is filing as head of household and has 2010 taxable income of $27,000 which includes $13,000 of net long-tem capital gain.The net long-term capital gain is made up of $10,000 25% gain and $3,000 0%/15% gain.What is the tax on her taxable income using the alternative tax method?

Accepted Answer

Under the alternative tax method, Sara's taxable income is recalculated by adding her long-term capital gains to her regular taxable income and then applying the alternative tax rates. The recalculated taxable income would be $37,000 ($27,000 + $10,000), which falls in the 25% tax bracket. Therefore, the tax on her long-term capital gains would be $3,000 (25% of $10,000) for the 25% gain and $0 for the 0%/15% gain. The tax on her regular taxable income would be $4,003 using the alternative tax rates. So the total tax would be $7,003 ($3,000 from the long-term capital gain + $4,003 from regular taxable income).

Question 2

Harry inherited a residence from his mother when she died.The mother had a tax basis of $566,000 for the residence when she died and the residence was worth $433,000 at the date of her death.Which of the statements below is correct?

Accepted Answer

The answer of Harry inherited a residence from his mother...

Question 3

Which of the following events causes the purchaser of an option to add the cost of the option to the basis of the property to which the option relates?

Accepted Answer

When the purchaser exercises the option, they add the cost of the option to the basis of the property to which the option relates.

Question 4

A lessor is paid $45,000 by its commercial tenant as a lease cancellation fee.The tenant wanted to get out of its lease so it could move to a different building.The lessor had held the lease for three years before it was canceled.The lessor had a zero tax basis for the lease.The lessor has received:

Accepted Answer

The lessor had a zero tax basis for the lease, which means that the entire $45,000 lease cancellation fee is treated as ordinary income. It is not a capital gain (long-term or short-term) and there is no loss. Therefore, the correct choice is A) Ordinary income of $45,000.

Question 5

Blue Company signs a 12-year franchise agreement with Fast Taco.Fast Taco retained significant powers,rights,and a continuing interest.Blue (the franchisee)makes noncontingent payments of $15,000 per year for the first five years of the franchise.Blue Company also pays a contingent fee of 2% of gross sales every month.Which of the following statements is correct?

Accepted Answer

The contingent fee of 2% of gross sales is deductible as it is paid because it is a regular business expense.

Question 6

Seamus had $16,000 of net short-term capital loss in 2009.In 2010,Seamus has $15,000 of long-term capital loss and $26,000 of long-term capital gain.Which of the following statements is correct?

Accepted Answer

From 2009, Seamus had a net short-term capital loss of $16,000. In 2010, Seamus had a net long-term capital gain of $26,000 - $15,000 = $11,000. This gain can offset the short-term loss carryover from 2009, leaving a remaining short-term loss of $16,000 - $11,000 = $5,000. So, Seamus has a net short-term capital loss of $5,000 and a net long-term capital gain of $11,000 in 2010, making options a and c true, and hence, the correct answer is D.

Question 7

Robin Corporation has ordinary income from operations of $30,000,net long-term capital gain of $10,000,and net short-term capital loss of $15,000.What is the taxable income for 2010?

Accepted Answer

The answer of Robin Corporation has ordinary income from operations...

Question 8

Ryan has the following capital gains and losses for 2010: $6,000 STCL,$5,000 28% gain,$2,000 25% gain,and $6,000 0%/15% gain.Which of the following is correct:

Accepted Answer

The short-term capital loss (STCL) of $6,000 is first offset against the 28% gain of $5,000, leaving a $1,000 STCL. This remaining $1,000 STCL is then offset against the 25% gain of $2,000, resulting in a net $1,000 25% gain. The $6,000 0%/15% gain remains unaffected.

Question 9

Which of the following comparisons is correct?

Accepted Answer

The answer of Which of the following comparisons is correct?
...

Question 10

On July 1,2010,Brandon purchased an option to buy 1,000 shares of General,Inc.at $30 per share.He purchased the option for $2,000.It was to remain in effect for five months.The market experienced a decline during the latter part of the year,so Brandon decided to let the option lapse as of December 1,2010.On his 2010 tax return,what should Brandon report?

Accepted Answer

The purchase of the option for $2,000 is treated as a short-term capital loss since the option expired within a year of purchase and was not exercised. Therefore, Brandon should report a $2,000 short-term capital loss on his 2010 tax return. None of the other choices are applicable to this situation.

Question 11

Which of the following is correct concerning short sales of stock?

Accepted Answer

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

Question 12

Harold is a mechanical engineer and,while unemployed,invents a switching device for computer networks.He patents the device,but does not reduce it to practice.Harold has a zero tax basis for the patent.In consideration of $300,000 plus a $1 royalty per device sold,Harold assigns the patent to a computer manufacturing company.Harold assigned all substantial rights in the patent.Which of the following is correct?

Accepted Answer

When Harold assigns the patent to the computer manufacturing company for a lump sum payment of $300,000 plus a $1 royalty per device sold, he realizes long-term capital gain from the lump sum payment. The gain is long-term because Harold held the patent for more than one year. Additionally, Harold will also realize long-term capital gain from the royalty payments he receives, as the patent was a capital asset that he held for more than one year before assigning it.

Question 13

In 2010,Satesh has $4,000 short-term capital loss,$14,000 0%/15% long-term capital gain,and $7,000 qualified dividend income.Satesh is single and has other taxable income of $15,000.Which of the following statements is correct?

Accepted Answer

The answer of In 2010,Satesh has $4,000 short-term capital loss,$14,000...

Question 14

The 2009 "Qualified Dividends and Capital Gain Worksheet" is used:

Accepted Answer

The 2009 "Qualified Dividends and Capital Gain Worksheet" is used to calculate the tax using the alternative tax method on 0%/15% net capital gain and qualified dividends.

Question 15

Virgil was leasing an apartment from Mauve,Inc.Mauve paid Virgil $1,000 to cancel his lease and move out so that Mauve could demolish the building.As a result:

Accepted Answer

Since Virgil received $1,000 for canceling his lease and moving out, he has a $1,000 capital gain. A capital gain is the profit earned from the sale or exchange of a capital asset, and in this case, Virgil received $1,000 for giving up his lease, which is considered a capital asset. Therefore, choice A is the correct answer. Choices B, C, D, and E are incorrect because none of them accurately reflect the transaction described in the scenario.

Question 16

Cason is filing as single and has 2010 taxable income of $38,000 which includes $36,000 of 0%/15% net long-term capital gain.What is his tax on taxable income using the alternative tax method?

Accepted Answer

Cason's ordinary income is $2,000 ($38,000 - $36,000). The tax on $2,000 at the 10% rate is $200. The $36,000 capital gain is taxed at 15%, resulting in $5,400. However, since the first $40,000 of income (including capital gains) is taxed at 0% for single filers in 2010, the capital gain tax is $0. Therefore, the total tax is $200.

Question 17

In 2010,Mark has $18,000 short-term capital loss,$7,000 28% gain,and $6,000 0%/15% gain.Which of the statements below is correct?

Accepted Answer

According to the IRS rules, capital losses can offset capital gains and up to $3,000 of ordinary income each year. So, Mark can use $3,000 of the $18,000 capital loss to offset ordinary income, leaving him with $15,000 capital loss. He can then use the $7,000 28% gain to offset $7,000 of the $15,000 capital loss, leaving him with $8,000 capital loss. Finally, he can use $6,000 of the remaining $8,000 capital loss to offset the 0%/15% gain, leaving him with $2,000 capital loss, which is less than the $3,000 deduction limit. Therefore, the correct answer is B, Mark has a $3,000 capital loss deduction.

Question 18

In 2009,Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction.In 2010,Jenny has a $16,000 0%/15% long-term capital gain and no other capital gain or loss transactions.Which of the statements below is correct?

Accepted Answer

Since Jenny had a net short-term capital loss of $12,000 and only deducted $3,000 in 2009, she has a remaining short-term capital loss of $9,000. This short-term capital loss can be carried forward and offset against future capital gains. 
In 2010, Jenny had a $16,000 long-term capital gain. She can use the $3,000 capital loss deduction first to offset this gain, leaving her with $13,000 remaining long-term capital gain. 
Then, she can offset the $9,000 short-term capital loss that was carried over from 2009 against this remaining long-term capital gain, leaving her with a net capital gain of $4,000.
Thus, the correct answer is B. Jenny has a 2010 $7,000 net capital gain.

Question 19

Magenta,Inc.sold a forklift on February 12,2010,for $3,000 (its FMV)to its 100% shareholder,Anise.Magenta's adjusted basis for the forklift was $7,000.Anise's holding period for the forklift:

Accepted Answer

The answer of Magenta,Inc.sold a forklift on February 12,2010,for $3,000...

Question 20

On August 10,2010,Black,Inc.acquired an office building as a result of a like-kind exchange.Black had given up a factory building that it had owned for 18 months as part of the like-kind exchange.Which of the statements below is correct?

Accepted Answer

In a like-kind exchange, the holding period of the new property (office building) includes the holding period of the old property (factory building).

Quiz 14: Property Transactions: Capital Gains and Losses,1231,and Recapure Provisions