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

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Question 21

True/False

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The only thing that the grantee of an option may do with the option is to exercise it or let it expire.

A) True
B) False

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Question 22

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White Company acquires a new machine for $75,000 and uses it in White's manufacturing operations.A few months after White places the machine in service, it discovers that the machine is not suitable for White's business.White had fully expensed the machine in the year of acquisition using § 179.White sells the machine for $60,000 in the tax year after it was acquired but held the machine only for a total of 10 months.What was the tax status of the machine when it was disposed of and the amount of the gain or loss?

A) A capital asset and $60,000 gain.
B) An ordinary asset and $60,000 gain.
C) A § 1231 asset and $60,000 gain.
D) A § 1231 asset and $60,000 loss.
E) None of these.

F) A) and B)
G) A) and E)

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Question 23

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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.

Carol had the following transactions during 2019: 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?

During 2019, an individual had the following gains and losses 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?

The tax law requires that capital gains and losses be separated from other types of gains and losses because an alternative tax calculation may be used when taxable income includes net long-term capital gain.

Violet, Inc., has a 2019 $80,000 long-term capital gain included in its $285,000 taxable income.Which of the following is correct?

Copper Corporation sold machinery for $47,000 on December 31, 2019.The machinery had been purchased on January 2, 2016, for $60,000 and had an adjusted basis of $41,000 at the date of the sale.For 2019, what should Copper report?

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

Cason is filing as single and has 2019 taxable income of $36,000 which includes $34,000 0%/15%/20% net long-term capital gain.What is his tax on taxable income using the alternative tax method? Note: Use the tax rate schedule rather than the tax table.

All short-term gain from collectibles is subject to a potential alternative tax rate of 28%.

Property is acquired in a qualifying like-kind exchange.The acquired property is sold three months after it is acquired.Which of the following is correct?

In order to be long term, the holding period must include at least parts of two tax years.

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.He assigns all substantial rights in the patent.Which of the following is correct?

Which of the following is not a tax status for an asset?

Which of the following is correct concerning short sales of stock at the time the short sale is made?

Phil's father who died on January 10, 2019 had owned stock for 20 years with a basis of $45,000 that was transferred to Phil as a gift on August 10, 2018, when the stock was worth $430,000.Phil's father had paid no gift taxes.This stock was worth $566,000 at the date of the father's death.Phil sold the stock for $545,000 net of commissions on February 23, 2019.What is the amount and nature of his gain or loss from disposition of this property?

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

Vertigo, Inc., has a 2019 net § 1231 loss of $64,000 and had a $32,000 net § 1231 gain in 2018.For 2019, Vertigo's net § 1231 loss is treated as: