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Exam 8: Property Transactions: Capital Gains and Losses, section 1231, and Recapture Provisions

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Question 61

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In 2013,an individual taxpayer has $863,000 of taxable income that includes $48,000 of 0%/15%/20% long-term capital gain.Which of the following statements is correct?

A) All of the LTCG will be taxed at 0%.
B) All of the LTCG will be taxed at 15%.
C) All of the LTCG will be taxed at 20%.
D) Some of the LTCG will be taxed at 15% and some at 20%.
E) None of the above.

F) B) and E)
G) C) and D)

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Question 62

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On January 18,2012,Martha purchased 200 shares of Blue Corporation stock for $2,000.On November 11,2013,she sold short 200 shares of Blue Corporation stock which she borrowed from her broker for $2,300.On February 10,2014,Martha closed the short sale by delivering the 200 shares of Blue Corporation stock which she had acquired in 2012.On that date,Blue Corporation stock had a market price of $4 per share.What is Martha's recognized gain or loss and its character in 2013? In 2014?

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Question 63

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Which of the following creates potential § 1245 depreciation recapture and potential § 1231 gain?

An accrual basis taxpayer accepts a note receivable from a retail customer with a weak credit rating.The taxpayer immediately sells the note to a bank for less than the note's stated value.The taxpayer has an ordinary loss.

Williams owned an office building (but not the land)that was destroyed by a fire.The building was insured and Williams has a $156,000 gain because his insurance recovery exceeded his adjusted basis for the building.Williams may replace the building.Williams had taken $145,000 of depreciation on the building,has no § 1231 lookback loss,has no other § 1231 transactions for the year,and has no Schedule D transactions for the year.What is the final nature of Jamison's gain for the year and what tax rate(s)apply to the gain if:

Sara is filing as head of household and has 2013 taxable income of $57,000 which includes $3,000 of net long-tem capital gain.The net long-term capital gain is made up of $1,000 25% gain and $2,000 0%/15%/20% gain.What is the tax on her taxable income using the alternative tax method?

A business taxpayer sold all the depreciable assets of the business,calculated the gains and losses,and would like to know the final character of those gains and losses.The taxpayer had $353,000 of adjusted gross income before considering the gains and losses from sale of the business assets.The taxpayer had unrecaptured § 1231 lookback loss of $22,000.What is the treatment of the gains and losses summarized in the chart below after all possible netting and reclassification has been completed? What is the taxpayer's adjusted gross income? (Ignore the self-employment tax deduction.) $\begin{array}{ll}\text { Asset } & \text { Purclnse Date } &\text { Sale Date } & \text { Depreciation }&\text { Gain (Loss) }\\\text { Machine \#1 } & 10 / 10 / 11&11 / 11 / 13 & \$ 323,000 & \$ 66,000 \\\text { Machine \#2 } & 10 / 02 / 10 & 11 / 11 / 13 & 65,000&(15,000) \\\text { Machine \#3 } & 09 / 23 / 09 & 11 / 11 / 13 & 183,000&23,000\\\text { Machine \#4 } & 09 / 23 / 09 & 11 / 11 / 13&28,000&34,000\end{array}$

Verway,Inc.,has a 2013 net § 1231 gain of $55,000 and had a $62,000 net § 1231 loss in 2012.For 2013,Verway's net § 1231 gain is treated as:

The tax law requires that capital gains and losses be separated from other types of gains and losses because there are limitations on the deduction of net capital losses.

In early 2012,Wanda paid $33,000 for an option on a parcel of land she intended to hold as an investment.After a survey of the land (paid for by the grantor)determined that the parcel was much smaller than the grantor said it was,she let the option lapse when it expired in 2013 after 14 months.How should Wanda treat these events in 2012? 2013?

An individual had the following gains and losses during 2013 on property held for the long-term holding period: sale of Orange common stock ($8,000 gain) ; sale of real property used in the taxpayer's business ($1,800 loss) ; destruction of real property used in the taxpayer's business by fire ($1,000 loss) .Which of the following statements is correct?

"Collectibles" held long-term and sold at a gain are subject to maximum tax rate of 28%.An individual taxpayer recently sold an antique car for $40,000.The car had been held for several years and $30,000 was originally paid for it.Explain why the car is or is not a collectible.

Harold is a head of household,has $27,000 of taxable income in 2013 from non-capital gain or loss sources,and has the following capital gains and losses: $28 \%$ long-term capital gain $\quad \$4,300$ $28 \%$ long-tem capital loss $\quad (2,000)$ $0 \% / 15 \% / 20 \%$ long-tem capital gain $\quad 19,000$ Short-term capital loss $\quad (1,700)$ What is Harold's taxable income and the tax on that taxable income?

On June 1,2013,Brady purchased an option to buy 1,000 shares of General,Inc.at $40 per share.He purchased the option for $3,000.It was to remain in effect for five months.The market experienced a decline during the latter part of the year,so Brady decided to let the option lapse as of December 1,2013.On his 2013 tax return,what should Brady report?

An individual taxpayer received a valuable painting from his uncle,a famous painter.The painter created the painting.After the taxpayer held the painting for two years,he sold it for a $400,000 gain.The gain is a long-term capital gain.

The subdivision of real property into lots for resale when no substantial physical improvements have been made to the property never causes the gain from sale of the lots to be treated as ordinary income.

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?

The chart below describes the § 1231 assets sold by the Ecru Company (a sole proprietorship)this year.Compute the gain or loss from each asset disposition and determine the net § 1231 gain treated as long-term capital gain for the year.Assume there is a § 1231 lookback loss of $4,000.

Vertigo,Inc.,has a 2013 net § 1231 loss of $64,000 and had a $32,000 net § 1231 gain in 2012.For 2013,Vertigo's net § 1231 loss is treated as:

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?