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Exam 14: Property Transactions: Capital Gains and Losses

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Question 61

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Short-term capital gain is eligible for a special tax rate only when it exceeds long-term capital gain.

A) True
B) False

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Question 62

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If § 1231 asset casualty gains and losses net to a gain,the gain is treated as a § 1231 loss.

A) True
B) False

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Question 63

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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.

A franchisor licenses its mode of business operation to a franchisee.

Section 1231 property generally includes certain intangible assets (such as patents and goodwill)that are developed by the taxpayer and that are not eligible for amortization,but are held for more than one year.

Which of the following events could result in § 1250 depreciation recapture?

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

Section 1237 allows certain professional real estate sales persons capital gain treatment if they engage only in limited sales activities.

Which of the following comparisons is correct?

Assume a building is subject to § 1250 depreciation recapture because it was acquired before 1987 and accelerated depreciation was used to depreciate it.The building is destroyed in a fire and this is the taxpayer's only casualty or theft for the year.In which of the following situations could there be a § 1250 depreciation recapture gain?

Opaque Company had machinery destroyed by a flood on December 23,2011.The machinery had been acquired on April 1,2009,for $69,000 and its adjusted basis was $14,200.The machinery was completely destroyed and Opaque received $30,000 of insurance proceeds for the machine and did not replace it.This was Opaque's only casualty or theft event for the year.As a result of this event,Opaque has:

In 2011 Angela,a single taxpayer with no dependents,disposed of for $44,000 a business building which cost $100,000.$60,000 of depreciation had been taken on the building.Angela has a short-term capital loss of $3,000 this year.She has taxable income (not related to property transactions)of $125,000.She has no § 1231 lookback loss.What is the amount and nature of the gain or loss,what is Angela's taxable income,and what is her tax on the taxable income?

Mike is a self-employed TV technician.He is usually paid as soon as he completes repairs,but occasionally bills a customer with payment expected within 30 days.At the end of the year he has $2,500 of receivables outstanding.He expects to collect $1,200 of this and write off the remainder.Mike is a cash basis taxpayer and had net earnings from his business (not including the effect of the items above)of $55,000.He also had $3,500 interest income,$200 gambling winnings,and sold corporate stock for $7,000.The stock had been purchased in 2008 for $8,200.Mike is single,has no dependents,and claims the standard deduction.What is his 2011 taxable income? (Ignore the self-employment tax deduction.)

Even though the Code defines what a capital asset is,often the courts still have to help determine what is and what is not a capital asset.

Cason is filing as single and has 2011 taxable income of $38,000 which includes $36,000 of 0%/15% net long-term capital gain.What is his tax on taxable income using the alternative tax method?

The following assets in Jack's business were sold in 2011: The office furniture had a zero adjusted basis and was purchased for $8,000.The automobile was purchased for $2,000 and sold for $1,200.The XYZ stock was purchased for $1,800 and sold for $3,200.In 2011 (the year of sale) ,Jack should report what amount of net capital gain and net ordinary income?

Section 1231 lookback losses may convert some or all of § 1250 gain into ordinary income.

In early 2010,Wilma paid $56,000 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 2011 after 14 months.How should Wilma treat these events in 2010? 2011?

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 long-term capital loss.

Septa is the owner of vacant land that he purchased in 2006 for $400,000 and held for investment.On January 22,2010,he was paid $45,000 for an eighteen-month option on the land by Samantha.Samantha could buy the land for an additional $1,200,000 by exercising the option.Samantha had hoped to develop the land into a shopping center,but was unable to get the zoning changed to accommodate building a shopping center on the land.Consequently,Samantha did not exercise her option and the option expired on August 15,2011.What is Septa's basis,gain,and type of gain from these events?