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Exam 8: Capital Gains and Losses

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Question 1

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Which of the following assets held by a manufacturing business is a § 1231 asset?

A) Inventory.
B) Office furniture used in the business and held less than one year.
C) A factory building used in the business and held more than one year.
D) Accounts receivable.
E) All of the above.

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

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Question 2

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An individual taxpayer has the gains and losses shown below.There are $3,000 of § 1231 lookback losses.What is the net long-term capital gain? $\begin{array} { l l c } \text { Holding Period/Property } & \text { Character of Gain or } & \text { Amount } \\& \text { Loss } & \\5 \text { years/vacant land } & \$ 1231 \text { gain } & \$ 7,000 \\2 \text { years/business equipment } & \S 1245 \text { gain } & 3,200 \\3 \text { years/publicly traded stock } & \text { Long-term capital gain } & 890 \\8 \text { months/publicly traded stock } & \text { Short-term capital loss } & (1,870)\end{array}$

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The taxpayer has a net long-term capital...

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Question 3

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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?

An individual has the following recognized gains and losses from disposition of § 1231 assets (all the assets were vacant land) : $15,000 gain, $10,000 loss, $25,000 gain, and $2,000 loss.The individual has a $5,500 § 1231 lookback loss.The individual also has a $16,000 net short-term capital loss from the disposition of stock.Which of the following statements is correct?

A retail building used in the business of a sole proprietor is sold on March 10, 2017, for $342,000.The building was acquired in 2007 for $400,000 and straight-line depreciation of $104,000 had been taken on the building.What is the maximum unrecaptured § 1250 gain from the disposition of this building?

Business equipment is purchased on March 10, 2016, used in the business until September 29, 2016, and sold at a $23,000 loss on October 10, 2016.The equipment was not suitable for the work the business had purchased it for.The loss on the disposition should have been reported in the 2016 Form 4797, Part:

Describe the circumstances in which the potential § 1245 depreciation recapture is extinguished.

Section 1250 depreciation recapture will apply when accelerated depreciation was used on property used outside the United States and the property is sold at a 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.

Martha has both long-term and short-term 2016 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 2016 taxable income puts her in the 28% tax bracket.Which of the following is correct?

On June 1, 2017, Brady purchased an option to buy 1,000 shares of General, Inc.at $40 per share.He purchased the option for $3,000.It was to remain in effect for five months.The market experienced a decline during the latter part of the year, so Brady decided to let the option lapse as of December 1, 2017.On his 2017 tax return, what should Brady report?

Depreciable personal property was sold at a gain in 2016.On what 2016 form would this transaction be reported, where initially in that form, and what will the form most likely do with the gain?

Describe the circumstances in which the maximum unrecaptured § 1250 gain (25% gain) does not become part of the Schedule D netting process for an individual taxpayer?

Copper Corporation sold machinery for $47,000 on December 31, 2017.The machinery had been purchased on January 2, 2014, for $60,000 and had an adjusted basis of $41,000 at the date of the sale.For 2017, what should Copper Corporation report?

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?

Section 1231 property generally does not include accounts receivables arising in the ordinary course of business.

Ranja acquires $200,000 face value corporate bonds for $186,000 when the bonds are issued.He holds the bonds as an investment for two years and then sells them for $198,000.He amortizes $2,000 of the OID.What tax issues does Ranja have with respect to these bonds?

Vertical, Inc., has a 2017 net § 1231 gain of $67,000 and had a $22,000 net § 1231 loss in 2016.For 2017, Vertical's net § 1231 gain is treated as:

Property sold to a related party that is depreciable by the purchaser may cause the seller to have ordinary gain.

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?