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

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Question 61

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The only thing that the grantee of an option may do with the option is to exercise it or let it expire.

A) True
B) False

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Question 62

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Ryan has the following capital gains and losses for 2019: $6,000 STCL, $5,000 28% gain, $2,000 25% gain, and $6,000 0%/15%/20% gain. Which of the following is correct:

A) The net capital gain is composed of $1,000 25% gain and $6,000 0%/15%/20% gain.
B) The net capital gain is composed of $5,000 28% gain and $2,000 0%/15%/20% gain.
C) The net capital gain is composed of $3,000 28% gain, $2,000 25% gain, and $2,000 0%/15%/20% gain.
D) The net capital gain is composed of $1,000 28% gain and $6,000 0%/15%/20% gain.
E) None of these.

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

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Question 63

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In 2015, Aaron purchased a classic car for $12,000 that he planned to restore. However, Aaron is too busy to work on the car and gives it to his daughter Ellie in 2019. At this time, the fair market value of the car has declined to $10,000. Aaron paid no gift tax on the transaction. Ellie completes some of the restoration herself with out-of-pocket costs of $5,000. She later sells the car for $30,000. What is Ellie's recognized gain or loss on the sale of the car?

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.

Which of the following events causes the purchaser of an option to add its cost to the basis of the property to which the option relates?

Property is acquired in a qualifying like-kind exchange. The acquired property is sold three months after it is acquired. 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. He assigns all substantial rights in the patent. Which of the following is correct?

Violet, Inc., has a 2019 $80,000 long-term capital gain included in its $285,000 taxable income. Which of the following is correct?

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.

Betty, a single taxpayer with no dependents, has the following gains and losses. Before considering these transactions, she has $45,000 of other taxable income. What is the treatment of the gains and losses and what is Betty's taxable income? $\begin{array}{lr}\S 1245 \text { gain \#1 } & \$ 18,000 \\\S 1245 \text { gain \#2 } & 5,000 \\\text { Business equipment long-term casualty loss } & (8,000) \\\text { Business real property long-term casualty gain } & 12,000 \\\text { § 1231 gain } & 13,000 \\\text { § 1231 lookback loss } & (2,000)\end{array}$

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 retail building used in the business of a sole proprietor is sold on March 10, 2019, for $342,000. The building was acquired in 2009 for $400,000 and straight-line depreciation of $104,000 had been taken on it. What is the maximum unrecaptured § 1250 gain from the disposition of this building?

Williams owned an office building (but not the land) that was destroyed by a fire. The building was insured and he has a $156,000 gain because his insurance recovery exceeded his adjusted basis for the building. Williams may replace the building. He had taken $145,000 of depreciation on the building, has no § 1231 lookback loss, has no other § 1231 transactions for the year, and has no Schedule D transactions for the year. What is final nature of his gain for the year and what tax rate(s) apply to the gain if: a. He does reinvest the insurance proceeds. a. Williams initially has a casualty gain of $156,000 from business use property. If he b. If he does not reinvest the insurance proceeds.

Annabelle, a trader in securities, works for a national securities firm. She occasionally buys and sells securities for her personal account. On May 10, 2018, she purchased 100 shares of Acorn, Inc. common stock for a total of $40,000. She sold all of those shares for a total of $46,000 on July 11, 2019. What was the amount and nature of her gain or loss from this transaction? What could she have done to change this result?

Janet received stock worth $4,000 at the time it was gifted to her by her father. He had acquired the stock several years earlier for $2,200. He paid no gift tax on the transfer to Janet. Janet sells the stock for $6,600 two months after receiving it. What are the nature and amount of Janet's gain or loss?

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:

The tax status of an asset refers to whether the asset is a capital asset, a § 1231 asset, or an ordinary asset.

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

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

Section 1231 gain that is treated as long-term capital gain carries from the 2018 Form 4797 to the 2018 Form 1040, Schedule D, line .