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Exam 8: Property Transactions: Capital Gains and Losses

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Question 21

Multiple Choice

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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) No gain or loss.
B) Sold a long-term capital asset.
C) Sold a short-term capital asset.
D) An ordinary gain.
E) None of the above.

F) A) and E)
G) A) and D)

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Question 22

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Section 1239 relating to the sale of certain property between related taxpayers) does not apply unless the property:

A) Was depreciated by the transferor.
B) Is depreciable in the hands of the transferee.
C) Is a capital asset.
D) Is real property.
E) None of the above.

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

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Question 23

Multiple Choice

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On June 10, 2018, Ebon, Inc.acquired an office building as a result of a like-kind exchange.Ebon had given up a factory building that it had owned for 26 months as part of the like-kind exchange.Which of the statements below is correct?

Once § 1231 gains are netted against § 1231 losses, if the gains exceed the losses, the net gain is offset by the "lookback" nonrecaptured § 1231 losses.

Lynne owns depreciable residential rental real estate which has accumulated depreciation all from straight-line) of $65,000.If Lynne sold the property, she would have a $53,000 gain.The initial characterization of the gain would be:

Copper Corporation sold machinery for $47,000 on December 31, 2018.The machinery had been purchased on January 2, 2015, for $60,000 and had an adjusted basis of $41,000 at the date of the sale.For 2018, what should Copper Corporation report?

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

An individual has a $40,000 § 1245 gain, a $35,000 § 1231 gain, a $33,000 § 1231 loss, a $3,000 § 1231 lookback loss, and a $15,000 long-term capital gain.The net long-term capital gain is:

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 2018?

The effect of § 1244 may be to convert a capital loss into an ordinary loss deductible for adjusted gross income.

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

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?

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.

In 2018, 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?

Red Company had an involuntary conversion on December 23, 2018.The machinery had been acquired on April 1, 2016, 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:

Martha has both long-term and short-term 2018 capital gains and losses.The result of netting these gains and losses is a net long-term capital loss.Martha has no qualified dividend income.Also, Martha's 2018 taxable income puts her in the 24% tax bracket.Which of the following is correct?

Thoren has the following items for the year: $4,000 of short-term capital gain, $5,000 of 0%/15%/20% long-term capital gain, and $1,500 of 28% capital loss.Which of the following is correct?

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?

Violet, Inc., has a 2018 $80,000 long-term capital gain included in its $285,000 taxable income.Which of the following is correct?

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