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

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Question 61

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Why is it generally better to have a net § 1231 gain year followed by a net § 1231 loss year rather than a net § 1231 loss year followed by a net § 1231 gain year?

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It is generally better to have a net § 1...

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Question 62

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A worthless security had a holding period of 11 months when it became worthless on December 10, 2012.The investor who had owned the security had a basis of $10,000 for it.Which of the following statements is correct?

A) The investor has a long-term capital loss of $10,000.
B) The investor has a short-term capital loss of $10,000.
C) The investor has a nondeductible loss of $10,000.
D) The investor has a short-term capital gain of $10,000.
E) None of the above.

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

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Question 63

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Seamus had $16,000 of net short-term capital loss in 2011. In 2012, Seamus has $17,000 of long-term capital loss and $26,000 of long-term capital gain. Which of the following statements is correct?

The subdivision of real property into lots for resale when no substantial physical improvements have been made to the property never causes the gain from sale of the lots to be treated as ordinary income.

Short-term capital losses are netted against long-term capital gains and long-term capital losses are netted against short-term capital gains.

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?

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?

The 2011 "Qualified Dividends and Capital Gain Worksheet" is used:

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

Section 1231 lookback losses may convert some or all of § 1250 gain into ordinary income.

Phil's father died on January 10, 2012.The father had owned stock for 20 years with a basis of $45,000 that was transferred to Phil as a gift on August 10, 2011, when the stock was worth $430,000.His father paid gift tax of $31,000.This stock was worth $566,000 at the date of the father's death.Phil sold the stock for $545,000 net of commissions on February 23, 2012.What is the amount and nature of Phil's gain or loss from disposition of this property?

Involuntary conversion gains may be deferred if the proceeds of the involuntary conversion are reinvested.

The three tax statuses are:

Section 1245 generally recaptures as ordinary income the portion of the gain that is equal to the sale price minus the original cost.

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

Mauve Company signs a 13-year franchise agreement with Mauve Too.Mauve Too retained significant powers, rights, and a continuing interest.Mauve Company (the franchisee) makes noncontingent payments of $16,000 per year for the first five years of the franchise.Mauve Company also pays a contingent fee of 1% of gross sales every month.Which of the following statements is correct?

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?

A business taxpayer sells depreciable business property with an adjusted basis of $40,000 for $32,000. The taxpayer held the property for more than a year. The taxpayer has an $8,000 § 1231 loss.

A business taxpayer trades in a used fully depreciated machine on a replacement machine. Because the machine traded in was worth more than the replacement machine, the taxpayer received cash in the transaction.Assume the used machine originally cost $100,000, was worth $32,000 when it was traded in, and the replacement machine was worth $20,000. Consequently, the taxpayer received $12,000 cash in the transaction.Is there recognized gain in this transaction and, if so, what type of gain?

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.