Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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1.
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Albert purchased a tract of land
for $140,000 in 2011 when he heard that a new highway was going to be constructed through the
property and that the land would soon be worth $200,000. Highway engineers surveyed the property and
indicated that he would probably get $180,000. The highway project was abandoned in 2014 and the
value of the land fell to $100,000. What is the amount of loss Albert can claim in 2014?
a. | $ 40,000 | d. | $ 100,000 | b. | $ 60,000 | e. | None of the Above | c. | $
80,000 |
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2.
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Abby sells real property for $300,000. The buyer pays $5,000 in property taxes
that had accrued during the year while the property was still legally owned by Abby. In addition,
Abby pays $15,000 in commissions and $3,000 in legal fees in connection with the sale. How much does
Abby realize (the amount realized) from the sale of her property?
a. | $277,000 | d. | $300,000 | b. | $282,000 | e. | None of the above | c. | $287,000 |
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3.
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. An individual has the
following recognized gains and losses from disposition of § 1231 assets (all the assets were
vacant land): $15,000 gain, $10,000 loss, $25,000 gain, and $2,000 loss. The individual has a $5,500
§ 1231 lookback loss. The individual also has a $16,000 net short-term capital loss from the
disposition of stock. Which of the following statements is correct?
a. | The taxpayer has $5,500 ordinary gain and $6,500 net long-term capital
gain. | d. | The taxpayer has $5,500 ordinary loss and $6,500 net long-term capital
gain. | b. | The taxpayer has $12,000 net long-term capital gain. | e. | None of the above | c. | The taxpayer has
$28,000 ordinary gain and $16,000 net short-term capital loss. |
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4.
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Which of the following statements is correct?
a. | When depreciable property is gifted to another individual taxpayer, the depreciation
recapture potential is extinguished. | d. | When depreciable property is contributed to charity, the
depreciation recapture potential has no effect on the amount of the charitable contribution
deduction. | b. | When depreciable property is inherited by a taxpayer, the depreciation recapture
potential is extinguished. | e. | All of the above are correct. | c. | When corporate depreciable property is
distributed as a dividend, the depreciation recapture potential is generally not
recognized. |
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5.
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A retail building used in the business of a sole proprietor is sold on March 10,
2014, for $342,000. The building was acquired in 2004 for $400,000 and straight-line depreciation of
$104,000 had been taken on the building. What is the maximum unrecaptured § 1250 gain
from the disposition of this building?
a. | $400,000 | d. | $26,000 | b. | $322,000 | e. | None of the above | c. | $104,000 |
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6.
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Red Company had an involuntary
conversion on December 23, 2014. The machinery had been acquired on April 1, 2012, for $49,000 and
its adjusted basis was $14,200. The machinery was completely destroyed by fire and Red received
$10,000 of insurance proceeds for the machine and did not replace it. This was Red’s only
casualty or theft event for the year. As a result of this event, Red initially has:
a. | $0 § 1231 gain, $10,800 § 1245 recapture gain, $0 § 1231
loss. | d. | $0 § 1231 gain, $10,800 § 1245 recapture gain, $34,200 § 1231
loss | b. | $0 § 1231 gain, $0 § 1245 recapture gain, $14,800 § 1231
loss. | e. | None of the
above. | c. | $0 § 1231 gain, $34,200 § 1245 recapture gain, $0 § 1231
loss. |
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7.
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The
following assets in Jack’s business were sold in 2014:
Asset | Holding Period | Gain/(Loss) | Office
Equipment | 6 years | $1,100 | Automobile | 8 months | ($ 800) | ABC
Stock (capital asset) | 2 years | $1,400 | | | |
?3?
The office equipment had a zero adjusted basis and was
purchased for $8,000. The automobile was purchased for $2,000 and sold for $1,200. The ABC stock was
purchased for $1,800 and sold for $3,200. In 2014 (the year of sale), Jack should report what amount
of net capital gain and net ordinary income?
a. | 1,700 LTCG. | d. | $2,500 LTCG and $800 ordinary loss. | b. | $600 LTCG
| e. | None of the
above. | c. | $1,400 LTCG and $300 ordinary gain. |
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8.
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A barn held more than one year
and used in a business is destroyed in a tornado. The barn originally cost $356,000 and was fully
depreciated using straight-line depreciation. The barn was insured for its $543,000 replacement cost
minus a deductible of $1,000. Which of the statements below is correct concerning these
facts?
a. | The barn was a long-term personal use asset. | d. | The recognized gain from
disposition of the barn is subject to special netting rules. | b. | There is a casualty
loss from disposition of the barn. | e. | c. and d. | c. | The recognized gain from disposition of the
barn is $186,000. |
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9.
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Martha has both long-term and short-term 2013 capital gains and losses. The
result of netting these gains and losses is a net long-term capital loss. Martha has no qualified
dividend income. Also, Martha’s 2013 taxable income puts her in the 28% tax bracket. Which of
the following is correct?
a. | Martha will use Parts I, II, and III of 2013 Form 1040 Schedule D. | d. | None of the
above. | b. | Martha will not benefit from the special treatment for long-term capital
gains. | e. | None of the
above. | c. | Martha will not benefit from the special treatment for long-term capital
gains. |
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10.
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Which of the following is correct concerning short sales of
stock?
a. | At the time the short sale is made, the taxpayer does not deliver to the purchaser
the shares sold short. | d. | At the time the short sale is made, the taxpayer always already
owns the shares sold short. | b. | At the time the short sale is made, the
taxpayer delivers to the purchaser the shares sold short. | e. | None of the above. | c. | At the time the
short sale is made, the taxpayer may already own the shares sold
short. |
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11.
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Hank inherited Green stock from
his mother when she died. The mother had a tax basis of $366,000 for the Green stock when she died
and the Green stock was worth $437,000 at the date of her death. Which of the statements below is
correct?
a. | Hank’s holding period for the Green stock includes his mother’s holding
period for the stock. | d. | Hank’s holding period for the Green stock is automatically
long term. | b. | Hank’s holding period for the Green stock does not include his mother’s
holding period for the stock. | e. | None of the above. | c. | Hank’s holding period for the Green stock
is automatically long term. |
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12.
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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?
a. | The option is exercised. | d. | The option is
rescinded. | b. | The option is sold. | e. | None of the above. | c. | The option
lapses. |
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13.
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Stella purchased vacant land in
2007 that she subdivided for resale as lots. All 10 of the lots were sold during 2014. The lots had a
tax basis of $12,000 each and sold for $35,000 each. Stella made no substantial improvements to the
lots. She acted as her own real estate broker; so there were no sales expenses for selling the lots.
Which of the following statements is correct?
a. | Stella must hold the lots for at least 10 years before she is eligible for the
special capital gain treatment of § 1237. | d. | To be eligible for the special
capital gain treatment of § 1237, Stella must be a real estate dealer. | b. | The $230,000 gain
from the sale of the ten lots is all ordinary income. | e. | None of the above. | c. | All of the $230,000
gain from the sale of the ten lots is long-term capital gain. |
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14.
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A business taxpayer sells
inventory for $80,000. The adjusted basis of the property is $58,000 at the time of the sale and the
inventory had been held more than one year. The taxpayer has:
a. | No gain or loss. | d. | An ordinary gain. | b. | Sold a long-term capital
asset. | e. | None of the
above. | c. | Sold a short-term capital asset. |
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