66. For purposes of determining the adjusted basis of a capital asset at the time of its sale,
67. If property is inherited by a taxpayer,
68. For purposes of taxation of capital gains
69. Casualty gains and losses from business or investment property:
70. For a transaction to qualify as like-kind exchange:
71. Which one of the following is a capital asset?
A. Accounts receivable
72. Which of the following sales results in a short-term gain/loss?
73. Carlos bought a building for $111,000 in 2009. He built an addition to the building for $24,000. In 2011, he
sold it for $190,000. What was his long-term capital gain?
74. Robert and Becca are in the 25 percent tax bracket. They have a long-term capital gain of $27,000 and a
long-term capital loss of $18,000 on sales of stock in 2011. What will their capital gains tax be in 2011?
75. Which one of the following is true about Section 1231 assets?
A. Section 1231 assets are treated like capital assets when they produce losses on sale.
76. In 2011, Tim sells Section 1245 property for $28,000 that he had purchased in 2007. Tim has claimed
$5,000 in depreciation on the property and originally purchased it for $15,000. How much of the gain is
taxable as ordinary income?
77. Tim sells land to Brad for $75,000. Tim originally purchased the land for $50,000. Brad agrees to pay Tim
five annual installments of $15,000 each. In year three, Brad makes his third installment of $15,000. How
much taxable gain will Tim have in year three?
A. $30,000
78. Which one of the following qualifies as a like-kind exchange?
79. Johnny owned a gas station with an adjusted basis of $300,000. After it was destroyed in a fire, he received
$600,000 from the insurance company. Within the next year, he bought a new gas station for $480,000. What
is Johnny’s taxable gain and what is the basis in the new building?
80. Nick received a gift of stock from his father. Nick’s father had purchased the stock 2 years earlier and his
father’s basis in the stock was $30,000. On the date of the gift, the stock had a fair market value of $25,000.
a.
If Nick sells the stock for $23,000, calculate the amount of Nick’s gain or loss on the transaction.
b.
If Nick sells the stock for $32,000, calculate the amount of Nick’s gain or loss on the transaction.
c.
If Nick sells the stock for $27,000, calculate the amount of Nick’s gain or loss on the transaction.
81. At the end of 2011, Falstaff sold for $5,000 General Martin stock that was purchased 5 months ago for
$4,000. He also sold Cedar stock for $6,000 at the same time. The Cedar stock cost $4,000, 2 years ago. In
addition, Falstaff has a short-term capital loss of $500 on the sale of silver.
a.
Calculate the amount of Falstaff’s net short-term and net long-term capital gain or loss.
b.
If Falstaff has a net capital gain, what is the maximum rate at which the gain will be taxed?
a.
Net short-term capital gain of $500 and a net long-term capital gain of $2,000.
82. During 2011, Ethel exchanges a machine for another machine in a like-kind exchange. Ethel’s adjusted basis
in the machine given up is $8,000, and she receives a machine worth $12,000 plus $2,000 cash.
a.
Calculate the amount of gain realized by Ethel on the exchange.
b.
Calculate the amount of the gain that must be recognized by Ethel on the transaction.
c.
Calculate Ethel’s basis in the new machine.
a.
b.
c.
a.
b.
c.
83. Stewart, age 44, sells his personal residence of 4 years on June 14, 2011, for $185,000. The expenses of sale
are $15,000 and he has paid for capital improvements of $3,000. Stewart purchased the residence for $100,000.
On February 2, 2012, Stewart purchases and occupies a new residence at a cost of $200,000.
a.
Calculate the gain realized on the sale of Stewart’s residence.
b.
How much gain must be recognized on the sale of Stewart’s residence?
c.
Calculate Stewart’s basis in the new residence.
84. Lorreta has a manufacturing business. In 2011, her storage building is completely destroyed by fire and she
receives $300,000 from her insurance company. She purchased the building for $295,000 in 1994 and has
claimed depreciation of $80,000 using the straight-line method. In 2012, she purchases a new storage building
at a cost of $285,000.
a.
Calculate Lorreta’s realized gain or loss.
b.
Assuming Lorreta makes an election under the involuntary conversion provision, calculate Lorreta’s recognized gain or loss?
c.
Assuming Lorreta makes an election under the involuntary conversion provision, what is Lorreta’s basis in the new building?
a.
b.
c.
85. During 2011, an office desk used by Pat in his business was completely destroyed by a fire. The adjusted
basis of the desk was $900 (original cost of $1,500 less accumulated depreciation of $600). Pat received $500
from his insurance company, but he did not replace the desk.
a.
What is the amount of Pat’s recognized gain or loss (deduction) as a result of the casualty?
b.
Assuming this is Pat’s only casualty gain or loss for 2011, what is the nature of the gain or loss?
a.
a.
b.
c.
86. Bev owns an apartment complex she purchased 10 years ago for $500,000 with a $100,000 cash down
payment accompanied by a $400,000 loan. Bev has made $75,000 of capital improvements on the complex and
her depreciation claimed on the building to date is $120,000. Calculate Bev’s adjusted basis in the building.
87. In 2011, Estes has net short-term capital losses of $3,000, a net long-term capital loss of $45,000, and
taxable income from wages of $35,000.
a.
Calculate the amount of Estes’ deduction for capital losses for 2011.
b.
Calculate the amount and nature (short-term or long-term) of his capital loss carryforward.
c.
For how many years may Estes carry the unused loss forward?
a.
b.
c.
Unused capital losses may be carried forward indefinitely
88. Verlin sells a commercial building and receives $50,000 in cash and a note for $50,000 at 10 percent
interest. Verlin’s adjusted basis in the building on the date of sale is $40,000 and he collects only the $50,000
down payment in the year of the sale.
a.
If Verlin elects to recognize the total gain on the property in the year of sale, calculate the taxable gain.
b.
Assuming Verlin uses the installment sale method, calculate the taxable gain he must report for the year of the sale.
c.
Assuming Verlin collects $10,000 (not including interest) of the note principal in the year following the year of sale, calculate the amount
of income recognized under the installment sale method.
a.
c.
89. In 2011, Penny exchanges a lot in Santa Barbara with a mountain view for a lot with an ocean view in a
qualifying like-kind exchange. Penny’s basis in the land given up is $100,000 and the property has a fair market
value of $250,000. In exchange for her property, Penny receives land with a fair market value of $200,000 and
cash of $20,000. In addition, the other party to the exchange assumes a mortgage loan on Penny’s property of
$30,000.
a.
Calculate Penny’s realized gain, if any, on the exchange.
b.
Calculate Penny’s recognized gain, if any, on the exchange.
c.
Calculate Penny’s basis in the property received.
90. In 2011, Helen sold Section 1245 property for $6,000. The property cost $25,000 when it was purchased 5
years ago. The depreciation claimed on the property was $23,000.
a.
Calculate the adjusted basis of the property.
b.
Calculate the amount of ordinary income under Section 1245.
c.
Calculate the Section 1231 gain.
a.
b.
c.
91. In November, 2011, 70-year-old Jeanette sells her personal residence of the last 40 years for $350,000.
Jeanette’s basis in her residence is $60,000. The expenses associated with the sale of her home total $20,000.
Jeanette decides to move in with her daughter rather than purchase a new residence. Calculate Jeanette’s
realized gain and recognized gain on the sale of her residence.
a.
Realized gain
b.
Recognized gain
a.
b.
c.
92. Elmer sold machinery used in his business for $20,000. The machinery originally cost $75,000 and had
$40,000 of accumulated depreciation at the time of the sale.
a.
What is the gain or loss on the sale of the machinery?
b.
Is the gain or loss treated as capital or ordinary? Explain.
b.
93. Karen received a stock portfolio upon the death of her grandmother. The stock originally cost her
grandmother $32,000, but was worth $300,000 when she died. What is Karen’s tax basis in the stock portfolio?
Explain.
94. Russell purchased a house 1 year ago for $150,000 and, due to an employment-related move, sold the house
this year for $200,000. What is Russell’s taxable gain?
95. The owner of M&N Milling exchanged a milling machine used in his business for a new one. M&N
Milling’s basis in the machine was $20,000 and the owner still owes $6,000 related to the purchase of the
machine. The other party to the exchange, M. Grinding, assumed the liability along with the machine and
transferred a newer and smaller machine worth $30,000 to M&N Milling.
a. Calculate M&N Milling’s
1. Realized gain on the exchange.
$__________
2. Recognized gain on the exchange.
$__________
b. Calculate the adjusted basis of the newer machine.
$__________
b.
96. The office building Donna owned and used for her desk-top publishing business was destroyed by a
hurricane. Although the basis of the building was $80,000, Donna carried replacement cost insurance and
received $160,000 from the insurance company after it was determined that the building was a complete loss. It
cost her $152,000 to rebuild the store in 2012.
a. Calculate Donna’s recognized gain, assuming an election under the involuntary conversion provision is made.
$__________
b. Calculate Donna’s basis in the replacement building.
$__________
97. Dana acquired rental property in June 2003 for $380,000 and sold it in October, 2011. $30,000 in straight-
line depreciation has been taken on the house. A run-up in housing prices in San Diego allowed him to sell the
house for $570,000. He received $170,000 when the buyer sold some investments, an additional $200,000 when
the buyer closed a loan from the bank, and took a $200,000 note from the buyer, payable on the anniversary of
the sale date in 10 installments of $20,000 each plus interest on the unpaid balance.
98. In October of the current year, Mike sold a share of Berkshire-Hathaway for $73,000. He had acquired it
several years ago at a cost of $38,000. He also sold Microsoft stock he had held for 3 years at a gain of $17,000.
He had a short-term $2,000 loss on the sale of stock of a start-up technical company. He has $85,000 in taxable
income before capital transactions are taken into account.
What is the amount of Mike’s tax on the capital transactions?
99. What are capital assets?
100. What is the treatment given to personal casualty gains and losses?