Question 1

In 2018, 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?

Accepted Answer

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 D)
G) B) and E)

Question 2

Which of the following would extinguish the § 1245 recapture potential?

Accepted Answer

A)  An exchange of depreciable business equipment for like-kind business equipment with gain realized, but not recognized.
B)  A nontaxable incorporation under § 351.
C)  A nontaxable contribution to a partnership under § 721.
D)  A nontaxable reorganization.
E)  None of the above.F) B) and E)
G) All of the above

Question 3

Which of the following is correct?

Accepted Answer

A)  Improperly classifying a § 1231 loss as a capital loss might affect adjusted gross income.
B)  Improperly classifying a capital loss as a § 1231 loss might affect adjusted gross income.
C)  Misclassifying a § 1231 gain as a short-term capital gain might affect adjusted gross income.
D)  Misclassifying a short-term capital gain as a § 1231 gain might affect adjusted gross income.
E)  All of the above.F) A) and D)
G) A) and C)

Question 4

A net short-term capital loss first offsets any 28% net long-term capital gain before it offsets either 25% net long- term capital gain or 0%/15%/20% net long-term capital gain.

Accepted Answer

A) True 
 B)False

Question 5

Since the Code section that defines "capital asset" says what is not a capital asset, other Code sections have to help determine what is and what is not a capital gain or loss.

Accepted Answer

A) True 
 B)False

Question 6

Blue Company sold machinery for $45,000 on December 23, 2018.The machinery had been acquired on April 1, 2016, for $69,000 and its adjusted basis was $34,200.The § 1231 gain, § 1245 recapture gain, and § 1231 loss from this transaction are:

Accepted Answer

A)  $0 § 1231 gain, $10,800 § 1245 recapture gain, $0 § 1231 loss.
B)  $0 § 1231 gain, $0 § 1245 recapture gain, $14,800 § 1231 loss.
C)  $0 § 1231 gain, $34,200 § 1245 recapture gain, $0 § 1231 loss.
D)  $0 § 1231 gain, $10,800 § 1245 recapture gain, $34,200 § 1231 loss.
E)  None of the above.F) B) and C)
G) All of the above

Question 7

A personal use property casualty loss that occurs in a non federally declared disaster area is deductible only to the extent it exceeds 10% of AGI.

Accepted Answer

A) True 
 B)False

Question 8

The maximum § 1245 depreciation recapture generally equals the accumulated depreciation.

Accepted Answer

A) True 
 B)False

Question 9

Section 1245 depreciation recapture potential does not carryover from a deceased taxpayer to the beneficiary taxpayer.

Accepted Answer

A) True 
 B)False

Question 10

Section 1231 property generally includes certain purchased intangible assets such as patents and goodwill) that are eligible for amortization and held for more than one year.

Accepted Answer

A) True 
 B)False

Question 11

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.

Accepted Answer

A) True 
 B)False

Question 12

Verway, Inc., has a 2018 net § 1231 gain of $55,000 and had a $62,000 net § 1231 loss in 2016.For 2018, Verway's net § 1231 gain is treated as:

Accepted Answer

A)  $55,000 ordinary loss.
B)  $55,000 ordinary gain.
C)  $55,000 capital loss.
D)  $55,000 capital gain.
E)  None of the above.F) All of the above
G) A) and D)

Question 13

Gold Company signs a 13-year franchise agreement with Silver.Silver retained significant powers, rights, and a continuing interest.Gold Company the franchisee)  makes noncontingent payments of $18,000 per year for the first four years of the franchise.Gold Company also pays a contingent fee of 2% of gross sales every month.Which of the following statements is correct?

Accepted Answer

A)  Gold Company may deduct the $18,000 per year noncontingent payments in full as they are made.
B)  Gold Company may deduct the monthly contingent fee as it is paid.
C)  Gold Company may deduct both the noncontingent annual fee and the contingent monthly fees as they are paid.
D)  Gold Company may not deduct either the noncontingent annual fee or the contingent monthly fees as they are paid.
E)  None of the above.F) B) and C)
G) C) and D)

Question 14

If a capital asset is sold at a gain, the holding period is important.

Accepted Answer

A) True 
 B)False

Question 15

A worthless security had a holding period of 6 months when it became worthless on December 10, 2018.The investor who had owned the security had a basis of $20,000 for it.Which of the following statements is correct?

Accepted Answer

A)  The investor has a long-term capital loss of $20,000.
B)  The investor has a short-term capital loss of $20,000.
C)  The investor has a nondeductible loss of $20,000.
D)  The investor has a short-term capital gain of $20,000.
E)  None of the above.F) A) and B)
G) None of the above

Question 16

On June 1, 2018, 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, 2018.On his 2018 tax return, what should Brady report?

Accepted Answer

A)  A $3,000 long-term capital loss.
B)  A $3,000 short-term capital loss.
C)  A $3,000 § 1231 loss.
D)  A $3,000 ordinary loss.
E)  None of the above.F) C) and D)
G) A) and D)

Question 17

Nonrecaptured § 1231 losses from the six prior tax years may cause current year net § 1231 gain to be treated as ordinary income.

Accepted Answer

A) True 
 B)False

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

Short-term capital losses are netted against long-term capital gains and long-term capital losses are netted against short-term capital gains.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A)  At the time the short sale is made, the taxpayer does not deliver to the purchaser the shares sold short.
B)  At the time the short sale is made, the taxpayer delivers to the purchaser the shares sold short.
C)  At the time the short sale is made, the taxpayer may already own the shares sold short.
D)  At the time the short sale is made, the taxpayer always already owns the shares sold short.
E)  None of the above.F) C) and D)
G) B) and C)

Exam 8: Property Transactions: Capital Gains and Losses

A personal use property casualty loss that occurs in a non federally declared disaster area is deductible only to the extent it exceeds 10% of AGI.

Correct Answer
verified

Nonrecaptured § 1231 losses from the six prior tax years may cause current year net § 1231 gain to be treated as ordinary income.

Correct Answer
verified

Which of the following is correct?

Correct Answer
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If a capital asset is sold at a gain, the holding period is important.

Correct Answer
verified

Verway, Inc., has a 2018 net § 1231 gain of $55,000 and had a $62,000 net § 1231 loss in 2016.For 2018, Verway's net § 1231 gain is treated as:

Correct Answer
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Correct Answer
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Blue Company sold machinery for $45,000 on December 23, 2018.The machinery had been acquired on April 1, 2016, for $69,000 and its adjusted basis was $34,200.The § 1231 gain, § 1245 recapture gain, and § 1231 loss from this transaction are:

Correct Answer
verified

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

Correct Answer
verified

A worthless security had a holding period of 6 months when it became worthless on December 10, 2018.The investor who had owned the security had a basis of $20,000 for it.Which of the following statements is correct?

Correct Answer
verified

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.

Correct Answer
verified

A net short-term capital loss first offsets any 28% net long-term capital gain before it offsets either 25% net long- term capital gain or 0%/15%/20% net long-term capital gain.

Correct Answer
verified

In 2018, 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?

Correct Answer
verified

The maximum § 1245 depreciation recapture generally equals the accumulated depreciation.

Correct Answer
verified

Which of the following would extinguish the § 1245 recapture potential?

Correct Answer
verified

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.

Correct Answer
verified

Short-term capital losses are netted against long-term capital gains and long-term capital losses are netted against short-term capital gains.

Correct Answer
verified

Correct Answer
verified

Section 1245 depreciation recapture potential does not carryover from a deceased taxpayer to the beneficiary taxpayer.

Correct Answer
verified

Since the Code section that defines "capital asset" says what is not a capital asset, other Code sections have to help determine what is and what is not a capital gain or loss.

Correct Answer
verified

Section 1231 property generally includes certain purchased intangible assets such as patents and goodwill) that are eligible for amortization and held for more than one year.

Correct Answer
verified

Exam 8: Property Transactions: Capital Gains and Losses

A personal use property casualty loss that occurs in a non federally declared disaster area is deductible only to the extent it exceeds 10% of AGI.

Correct AnswerverifiedShow Answer

Nonrecaptured § 1231 losses from the six prior tax years may cause current year net § 1231 gain to be treated as ordinary income.

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

If a capital asset is sold at a gain, the holding period is important.

Correct AnswerverifiedShow Answer

Verway, Inc., has a 2018 net § 1231 gain of $55,000 and had a $62,000 net § 1231 loss in 2016.For 2018, Verway's net § 1231 gain is treated as:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Blue Company sold machinery for $45,000 on December 23, 2018.The machinery had been acquired on April 1, 2016, for $69,000 and its adjusted basis was $34,200.The § 1231 gain, § 1245 recapture gain, and § 1231 loss from this transaction are:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A worthless security had a holding period of 6 months when it became worthless on December 10, 2018.The investor who had owned the security had a basis of $20,000 for it.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

A net short-term capital loss first offsets any 28% net long-term capital gain before it offsets either 25% net long- term capital gain or 0%/15%/20% net long-term capital gain.

Correct AnswerverifiedShow Answer

In 2018, 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?

Correct AnswerverifiedShow Answer

The maximum § 1245 depreciation recapture generally equals the accumulated depreciation.

Correct AnswerverifiedShow Answer

Which of the following would extinguish the § 1245 recapture potential?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Short-term capital losses are netted against long-term capital gains and long-term capital losses are netted against short-term capital gains.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Section 1245 depreciation recapture potential does not carryover from a deceased taxpayer to the beneficiary taxpayer.

Correct AnswerverifiedShow Answer

Since the Code section that defines "capital asset" says what is not a capital asset, other Code sections have to help determine what is and what is not a capital gain or loss.

Correct AnswerverifiedShow Answer

Section 1231 property generally includes certain purchased intangible assets such as patents and goodwill) that are eligible for amortization and held for more than one year.

Correct AnswerverifiedShow Answer

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