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Exam 8: Capital Gains and Losses

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Question 51

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Individuals who are not professional real estate developers may get capital gain treatment for sale of their real property if they engage only in limited development activities.

A) True
B) False

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Question 52

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Larry was the holder of a patent on a video game.During 2017, he sold all substantial rights in the patent for $365,000 in cash and a 3% royalty on the purchaser's first $10,200,000 of sales each year related to the product in which the patent is incorporated.Larry had not reduced the patent to practice.He had a $86,000 basis for the patent.During 2017, he received $30,000 in royalties.What is the nature and amount of Larry's gain?

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Question 53

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A lease cancellation payment received by a lessee is generally treated as an exchange because the lease extinguished is usually a capital asset.

Carol had the following transactions during 2017: a painting held for two years and sold at a gain of $85,000; 100 shares of Gray stock held six months and sold for a loss of $6,000; 50 shares of Yellow stock held 18 months and sold for a gain of $36,000.Carol also had $264,000 of taxable income from other sources than these property transactions.What is Carol's net capital gain or loss and what is her taxable income?

Which of the following statements is correct?

Vanna owned an office building that had been held more than one year when it was sold for $567,000.The real estate had an adjusted basis of $45,000 for the land and $233,000 for the building.Straight-line depreciation of $162,000 had been taken on the building.What is the amount and initial character of the gain or loss from disposition of the real estate? Is any of the gain unrecaptured § 1250 (25%) gain?

Personal use property casualty gains and losses are not subject to the § 1231 rules.

A sheep must be held more than 18 months to qualify as a § 1231 asset.

Samuel, head of household with two dependents, has 2017 wages of $26,000, paid alimony of $3,000, has taxable interest income of $2,000, and a $12,000 0%/15%/20% net long-term capital gain.Samuel uses the standard deduction and is age 38.What is his 2017 taxable income and the tax on the taxable income?

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 2017?

Section 1231 applies to the sale or exchange of business properties, but not to personal use activity casualties.

An individual business taxpayer owns land on which he grows trees for logging.The land has been held more than 10 years and the trees growing on the land were planted eight years ago.Normally, the timber would be inventory for this taxpayer, but the tax law allows the taxpayer to elect to treat cutting the timber as the disposition of a § 1231 asset.

Ryan has the following capital gains and losses for 2017: $6,000 STCL, $5,000 28% gain, $2,000 25% gain, and $6,000 0%/15%/20% gain.Which of the following is correct:

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?

Jambo invented a new flexible cover for a popular brand of cellphone, but did not have the finances to begin production of the cover.Instead, he sold all his rights to the invention (after patenting it) for $450,000 plus $.10 for each cover sold by the company that purchased the patent.Jambo had a zero tax basis for the invention.What is the character of his gain from disposition of the patent?

Violet, Inc., has a 2017 $80,000 long-term capital gain included in its $285,000 taxable income.Which of the following is correct?

Judith (now 37 years old) owns a collection of porcelain dolls that she acquired when she was a grade schooler.She had forgotten about them until her mother sent them to her.Her mother had discovered them in a box in her attic while she was cleaning out her house before selling it.Judith had originally acquired all the dolls as gifts from her parents, so she has no way to establish a basis for the dolls.Using information from the Internet, she prepares a careful inventory of the dolls that includes their name, when they were first available for sale, their current value, and other pertinent information.She then lists them for sale on the Internet.To her surprise, she quickly gets an offer of $5,000 for all of them and sells them.Judith has no other gain or loss transactions for the year and is in the 28% marginal tax bracket.What issues do these facts create?

When a patent is transferred, the most common forms of payment received by the transferor are a lump sum and/or periodic payment.

Hiram is a computer engineer and, while unemployed, invents a switching device for computer networks.He patents the device, but does not reduce it to practice.Hiram has a zero tax basis for the patent.In consideration of $800,000 plus a $1 royalty per device sold, Hiram assigns the patent to a computer manufacturing company.Hiram assigned all substantial rights in the patent.Which of the following is correct?

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