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Exam 16: Property Transactions Capital Gains and Losses

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Question 1

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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?

A) Stella must hold the lots for at least 10 years before she is eligible for the special capital gain treatment of § 1237.
B) The $230,000 gain from the sale of the ten lots is all ordinary income.
C) All of the $230,000 gain from the sale of the ten lots is long-term capital gain.
D) To be eligible for the special capital gain treatment of § 1237,Stella must be a real estate dealer.
E) None of the above.

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

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Question 2

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Carol had the following transactions during 2016: a painting held for two years and sold at a gain of $85,000;100 shares of Gray stock held six months and sold for a loss of $6,000;50 shares of Yellow stock held 18 months and sold for a gain of $36,000.Carol also had $264,000 of taxable income from other sources than these property transactions.What is Carol's net capital gain or loss and what is her taxable income?

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Carol has taxable income of $379,000.Lon...

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Question 3

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The holding period of property given up in a like-kind exchange includes the holding period of the asset received if the property that has been exchanged is a capital asset.

When an individual taxpayer has a net long-term capital gain that includes both 28% gain and 0%/15%/20% gain,which of these gains will be taxed first when the alternative tax on net long-term capital gain method is used and what difference does it make?

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?

To compute the holding period,start counting on the day after the property was acquired and include the day of disposition.

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.

A lease cancellation payment received by a lessee is generally treated as an exchange because the lease extinguished is usually a capital asset.

Short-term capital gain is eligible for a special tax rate only when it exceeds long-term capital gain.

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:

In early 2015,Wanda paid $33,000 for an option on a parcel of land she intended to hold as an investment.After a survey of the land (paid for by the grantor)determined that the parcel was much smaller than the grantor said it was,she let the option lapse when it expired in 2016 after 14 months.How should Wanda treat these events in 2015? 2016?

Phil's father died on January 10,2016.The father had owned stock for 20 years with a basis of $45,000 that was transferred to Phil as a gift on August 10,2015,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 23,2016.What is the amount and nature of Phil's gain or loss from disposition of this property?

Lease cancellation payments received by a lessor are always ordinary income because they are considered to be in lieu of rental payments.

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.

On June 1,2016,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 1,2016.On his 2016 tax return,what should Brady report?

Judith (now 37 years old)owns a collection of porcelain dolls that she acquired when she was a grade schooler.She had forgotten about them until her mother sent them to her.Her mother had discovered them in a box in her attic while she was cleaning out her house before selling it.Judith had originally acquired all the dolls as gifts from her parents,so she has no way to establish a basis for the dolls.Using information from the Internet,she prepares a careful inventory of the dolls that includes their name,when they were first available for sale,their current value,and other pertinent information.She then lists them for sale on the Internet.To her surprise,she quickly gets an offer of $5,000 for all of them and sells them.Judith has no other gain or loss transactions for the year and is in the 28% marginal tax bracket.What issues do these facts create?

Larry was the holder of a patent on a video game.During 2016,he sold all substantial rights in the patent for $365,000 in cash and a 3% royalty on the purchaser's first $10,200,000 of sales each year related to the product in which the patent is incorporated.Larry had not reduced the patent to practice.He had a $86,000 basis for the patent.During 2016,he received $30,000 in royalties.What is the nature and amount of Larry's gain?

On January 10,2016,Wally sold an option for $2,000 on vacant land he held as an investment.He had purchased the land in 2012 for $76,000.The option allowed the option holder to purchase the property for $122,000 plus the cost of the option.On March 1,2016,the option holder exercised the option.What is the amount and nature of Wally's gain or loss from disposition of the land?

Recognized gains and losses from disposition of a capital asset may occur as a result of a:

Which of the following comparisons is correct?