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Exam 14: Property Transactions: Capital Gains and Losses,1231,and Recapure Provisions

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Question 51

Multiple Choice

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An individual had the following gains and losses during 2010 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 is correct?

A) The fire loss would reduce the real property sale loss.
B) The fire loss would reduce the stock sale gain.
C) The sale of real property loss would be netted against the stock sale gain.
D) The sale of real property is a § 1231 loss.
E) None of the above.

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

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Question 52

Multiple Choice

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Red Company had an involuntary conversion on December 23,2010.The machinery had been acquired on April 1,2008,for $49,000 and its adjusted basis was $14,200.The machinery was completely destroyed by fire and Red received $10,000 of insurance proceeds for the machine and did not replace it.This was Red's only casualty or theft event for the year.As a result of this event,Red initially has:

A) $10,000 § 1231 loss.
B) $10,000 § 1245 recapture gain.
C) $4,200 casualty loss.
D) $4,200 § 1231 loss.
E) None of the above.

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

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Question 53

Multiple Choice

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A lessor is paid $45,000 by its commercial tenant as a lease cancellation fee.The tenant wanted to get out of its lease so it could move to a different building.The lessor had held the lease for three years before it was canceled.The lessor had a zero tax basis for the lease.The lessor has received:

Involuntary conversion gains may be deferred if the proceeds of the involuntary conversion are reinvested.

To compute the holding period,start counting on the day the property was acquired and include the day of disposition.

Blue Company signs a 12-year franchise agreement with Fast Taco.Fast Taco retained significant powers,rights,and a continuing interest.Blue (the franchisee) makes noncontingent payments of $15,000 per year for the first five years of the franchise.Blue Company also pays a contingent fee of 2% of gross sales every month.Which of the following statements is correct?

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

Real property subdivided for resale into lots,even if no substantial physical improvements have been made to the property,always causes the gain from sale of the lots to be treated as ordinary income.

The only things that the grantee of an option may do with the option are exercise it or let it expire.

In 2009,Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction.In 2010,Jenny has a $16,000 0%/15% long-term capital gain and no other capital gain or loss transactions.Which of the statements below is correct?

Seamus had $16,000 of net short-term capital loss in 2009.In 2010,Seamus has $15,000 of long-term capital loss and $26,000 of long-term capital gain.Which of the following statements is correct?

Samuel,head of household with two dependents,has 2010 wages of $26,000,paid alimony of $3,000,has taxable interest income of $2,000,and a $12,000 0%/15% net long-term capital gain.Samuel uses the standard deduction and is age 38.What is his 2010 taxable income and the tax on the taxable income?

A business machine purchased April 10,2009,for $62,000 was fully depreciated in 2009 using § 179 immediate expensing.On August 15,2010,the sole proprietor who owned the machine gave it to his son.On that date,the machine's fair market value was $57,000.The son did not use the machine in business or hold it as inventory and the machine was sold on November 22,2010,for $53,000.What is the amount and nature of the gain or loss from disposition of the machine? Where is it reported in the son's tax return?

A personal use property casualty loss is generally deductible only to the extent it exceeds 10% of AGI.

On January 10,2010,Wally sold an option for $1,000 on vacant land he held as an investment.He had purchased the land in 2006 for $66,000.The option allowed the option holder to purchase the property for $132,000 plus the cost of the option.On March 1,2010,the option holder exercised the option.What is the amount and nature of Wally's gain or loss from disposition of the land?

Ryan has the following capital gains and losses for 2010: $6,000 STCL,$5,000 28% gain,$2,000 25% gain,and $6,000 0%/15% gain.Which of the following 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.

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.

Karla 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?

A worthless security had a holding period of 11 months when it became worthless on November 10,2010.The investor who had owned the security had a basis of $10,000 for it.Which of the following statements is correct?