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Exam 8: Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions

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Question 31

True/False

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

A) True
B) False

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Question 32

Multiple Choice

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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 2016?

A) $25,000
B) $27,000
C) $28,500
D) $30,000
E) None of the above

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

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Question 33

Multiple Choice

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Which of the following is correct concerning short sales of stock?

Personal use property casualty gains and losses are not subject to the § 1231 rules.

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 2012 for $8,200. Mike is single, has no dependents, and claims the standard deduction. What is his 2016 taxable income? (Ignore the self-employment tax deduction.)

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

A business machine purchased April 10, 2015, for $62,000 was fully depreciated in 2015 using § 179 immediate expensing. On August 15, 2016, 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, 2016, 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?

Tom has owned 40 shares of Orange Corporation stock for five years. He sells the stock short for a total of $1,100. One month later, he closes the short sale by purchasing and delivering 40 shares of Orange Corporation stock for a total of $600. Tom has a $500 short-term capital gain.

Sharon has the following results of netting her short-term and long-term capital gains and losses for 2016: $56,000 short-term capital loss, and $82,000 net long-term capital gain ($21,000 0%/15%/20% long-term capital gain, and $61,000 25% long-term capital gain).

Which of the following would be included in the netting of § 1231 gains and losses?

Section 1231 property includes nonpersonal use property where casualty gains exceed casualty losses for the taxable year.

Martha is unmarried with one dependent and files as head of household. She had 2016 taxable income of $45,000 which included $16,000 of 0%/15%/20% net long-term capital gain. What is her tax on taxable income using the alternative tax on net long-term capital gain method?

Tan, Inc., sold a forklift on April 12, 2016, for $8,000 (its FMV) to its 100% shareholder, Ashley. Tan's adjusted basis for the forklift was $12,000. Ashley's holding period for the forklift:

For § 1245 recapture to apply, accelerated depreciation must have been taken on the property.

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?

Stella purchased vacant land in 2009 that she subdivided for resale as lots. All 10 of the lots were sold during 2016. The lots had a tax basis of $12,000 each and sold for $35,000 each. Stella made no substantial improvements to the lots. She acted as her own real estate broker; so there were no sales expenses for selling the lots. Which of the following statements is correct?

Which of the following statements is correct?

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

Blue Company sold machinery for $45,000 on December 23, 2016. The machinery had been acquired on April 1, 2014, for $69,000 and its adjusted basis was $34,200. The § 1231 gain, § 1245 recapture gain, and § 1231 loss from this transaction are:

Hilda lent $2,000 to a close personal friend to help the friend avoid overdrawing the friend's checking account. The friend was supposed to repay the $2,000 within a month. Instead, the friend declared personal bankruptcy and Hilda will never recover any of the $2,000. What are the tax implications of these events for Hilda?