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Exam 8: Capital Gains and Losses

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Question 31

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Stanley operates a restaurant as a sole proprietorship.Which of the following items are capital assets in the hands of Stanley?

A) The restaurant's tables and chairs.
B) A portable sound system used to play "theme music" for the restaurant.
C) The restaurant building that is an asset of the sole proprietorship.
D) An interest-bearing savings account used to keep the restaurant's excess cash.
E) None of the above.

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Question 32

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An individual taxpayer with 2017 net short-term capital loss of $5,000 generally can deduct up to $3,000 for AGI and carry the balance forward to 2018.

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Question 33

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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?

If § 1231 asset casualty gains and losses net to a gain, the gain is treated as a § 1231 gain.

A security that was purchased by an individual and qualifies as § 1244 stock becomes worthless.The taxpayer is single and the loss is $30,000.The loss is treated as an ordinary loss.

Sara is filing as head of household and has 2017 taxable income of $57,000 which includes $3,000 of net long-tem capital gain.The net long-term capital gain is made up of $1,000 25% gain and $2,000 0%/15%/20% gain.What is the tax on her taxable income using the alternative tax method? Note: Use the tax rate schedule rather than the tax table.

The chart below describes the § 1231 assets sold by the Ecru Company (a sole proprietorship) this year.Compute the gain or loss from each asset disposition and determine the net § 1231 gain treated as long-term capital gain for the year.Assume there is a § 1231 lookback loss of $4,000. $\begin{array} { l c c c c c } \text { Asset } & \text { Acquired } & \text { Sold } & \text { Cost } & \text { Depreciation } & \text { Sale Price } \\\text { Stamping } & 3 / 10 / 13 & 8 / 10 / 17 & \$ 40,000 & \$ 29,736 & \$ 32,000 \\\text { machine } & & & & & \\\begin{array} { l } \text { Factory } \\\text { building }\end{array} & 2 / 12 / 10 & 7 / 23 / 17 & 80,000 & 18,838 & 90,000 \\\text { Tractor } & 5 / 16 / 12 & 11 / 13 / 17 & 52,000 & 52,000 & 30,000 \\\begin{array} { l } \text { Overhead } \\\text { crane }\end{array} & 11 / 12 / 06 & 2 / 25 / 17 & 74,000 & 74,000 & 18,000\end{array}$ ?

Blue Company sold machinery for $45,000 on December 23, 2017.The machinery had been acquired on April 1, 2015, for $69,000 and its adjusted basis was $34,200.The § 1231 gain, § 1245 recapture gain, and § 1231 loss from this transaction are:

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

Section 1231 property generally includes certain purchased intangible assets (such as patents and goodwill) that are eligible for amortization and held for more than one year.

Theresa and Oliver, married filing jointly, and both over 65 years of age, have no dependents.Their 2017 income tax facts are: $\begin{array}{lr}\text { Theresa's wages } & \$ 165,000 \\\text { Oliver's wages } & 33,000 \\\text { Shortterm capital gain } & 36,000 \\\text { Longterm capital loss } & (41,000)\end{array}$ What is their taxable income for 2017?

In 2017, an individual taxpayer has $863,000 of taxable income that includes $48,000 of 0%/15%/20% long-term capital gain.Which of the following statements is correct?

Betty, a single taxpayer with no dependents, has the gains and losses shown below.Before considering these transactions, Betty has $45,000 of other taxable income.What is the treatment of the gains and losses and what is Betty's taxable income? $\begin{array}{lr}\S 1245 \text { gain \#1 } & \$ 18,000 \\\S1245 \text { gain \#2 } & 5,000 \\\text { Business equipment long-term casualty loss } & (8,000) \\\text { Business real property long-term casualty gain } & 12,000 \\\S 1231 \text { gain } & 13,000 \\\S 1231 \text { lookback loss } & (2,000)\end{array}$

Section 1245 applies to amortizable § 197 intangible assets.

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

Lana purchased for $1,410 a $2,000 bond when it was issued two years ago.Lana amortized $200 of the original issue discount and then sold the bond for $1,800.Which of the following statements is correct?

The chart below details Sheen's 2015, 2016, and 2017 stock transactions.What is the capital loss carryover to 2017 and what is the net capital gain or loss for 2017? $\begin{array} { r r r r r } \text { Tax Year } & \begin{array} { r } \text { Short-term } \\\text { Capital Gains }\end{array} & \begin{array} { r } \text { Short-term } \\\text { Capital Losses }\end{array} & \begin{array} { r } \text { Long-term } \\\text { Capital Gains }\end{array} & \begin{array} { r } \text { Long-term } \\\text { Capital Losses }\end{array} \\2015 & \$ 4,000 & \$ 6,000 & \$ 2,000 & \$ 13,000 \\2016 & \$ 16,000 & \$ 14,000 & \$ 23,000 & \$ 28,000 \\2017 & \$ 55,000 & \$ 52,000 & \$ 67,000 & \$ 33,000\end{array}$

Section 1231 gain that is treated as long-term capital gain carries from the 2016 Form 4797 to the 2016 Form 1040, Schedule D, line ____.

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 capital loss.

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: