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Exam 16: Property Transactions: Capital Gains and Losses

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Question 41

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In 2017, Mark has $18,000 short-term capital loss, $7,000 28% gain, and $6,000 0%/15%/20% gain. Which of the statements below is correct?

A) Mark has a $5,000 capital loss deduction.
B) Mark has a $3,000 capital loss deduction.
C) Mark has a $13,000 net capital gain.
D) Mark has a $5,000 net capital gain.
E) Mark has a $18,000 net capital loss.

F) A) and B)
G) A) and C)

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Question 42

Multiple Choice

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Stella purchased vacant land in 2010 that she subdivided for resale as lots. All 10 of the lots were sold during 2017. 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.
B) The $230,000 gain from the sale of the ten lots is all ordinary income.
C) All of the $230,000 gain from the sale of the ten lots is long-term capital gain.
D) To be eligible for the special capital gain treatment of § 1237, Stella must be a real estate dealer.
E) None of the above.

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

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Question 43

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A security that was purchased by an individual and qualifies as § 1244 stock becomes worthless. The taxpayer is single and the loss is $30,000. The loss is treated as an ordinary loss.

The tax law requires that capital gains and losses be separated from other types of gains and losses. Among the reasons for this treatment are:

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.

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?

Recognized gains and losses from disposition of a capital asset may occur as a result of a:

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.

In 2016, Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction. In 2017, Jenny has a $18,000 0%/15%/20% long-term capital gain and no other capital gain or loss transactions. Which of the statements below is correct for 2017?

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

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

Virgil was leasing an apartment from Marple, Inc. Marple paid Virgil $1,000 to cancel his lease and move out so that Marple could demolish the building. As a result:

Tom has owned 40 shares of Orange Corporation stock for five years. He sells the stock short for a total of $1,100. One month later, he closes the short sale by purchasing and delivering 40 shares of Orange Corporation stock for a total of $600. Tom has a $500 short-term capital gain.

A business taxpayer sells depreciable business property with an adjusted basis of $40,000 for $32,000. The taxpayer held the property for more than a year. The taxpayer has an $8,000 capital loss.

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?

Martha is unmarried with one dependent and files as head of household. She had 2017 taxable income of $45,000 which included $16,000 of 0%/15%/20% net long-term capital gain. What is her tax on taxable income using the alternative tax on net long-term capital gain method?

A worthless security had a holding period of 6 months when it became worthless on December 10, 2017. The investor who had owned the security had a basis of $20,000 for it. Which of the following statements is correct?

Sara is filing as head of household and has 2017 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? Note: Use the tax rate schedule rather than the tax table.