This course provides an overview of the key concepts and tax consequences of transactions involving capital gains and losses. It reviews the basic rules and what you can do to take maximum advantage of them. This course covers generally applicable tax knowledge for your personal and professional development. Any time spent completing this course is personal to you, is not part of your job duties and, as such, will not be compensated.
1. Under the Jobs and Growth Tax Relief Reconciliation Act of 2003:
a.The maximum capital gains rate for corporations is 15 percent.
b.Capital assets that the taxpayer owns for at least five years are eligible for a special rate reduction.
c.Depending on the nature of the asset the maximum rate of tax on capital gains for individuals is 15 percent.
d.After December 31, 2007, the lower rates on long-term capital gains expired.
2. Rob Seymour owns 50 percent of the outstanding stock in X company. Another 30 percent of the stock is owned by a trust for Rob's wife. Any gain recognized from the sale of depreciable property between the company and the trust would be treated as:
a.Ordinary income
b.Short-term capital gain
c.Long-term capital gain
d.Part non-taxable and part long-term capital gain
3. Regarding Code Sec. 1245, which of the following is not a true statement?
a.Patents, copyrights and subscription lists are not section 1245 property.
b.Gain on the sale or other disposition of tangible personal property is taxable as ordinary income to the extent of depreciation deducted.
c.If a father makes a gift to his son of an automobile previously used 100 percent in the father's business, and the son thereafter uses the car solely for personal purposes, the car is section 1245 property in the son's hands.
d.Code Section 1245 property includes any railroad grading or tunnel bore
4. In 2009, Dave Davis claimed a Code Sec. 179 expense deduction of $15,000 for qualifying business assets used in his construction business. He also claimed $10,000 in depreciation deductions for those same assets before selling them in December 2011. If Dave disposes of these assets at a gain, he will have to recapture as ordinary income:
a.$10,000
b.$15,000
c.$25,000
d.$5,000
5. A calendar-year taxpayer had net Code Sec. 1231 losses of $8,000 in 2009. He had net Code Sec. 1231 gains of $5,250 in 2010 and and $4,600 in 2011, respectively. There were no net Code Sec. 1231 losses in 2006, 2007, or 2008. What portion of the net Code Sec. 1231 gain is reported as ordinary income, and what portion is considered long-term capital gain in 2011?
a.$5,250 is reported as ordinary income and no portion is treated as long-term gain.
b.No long-term capital gain is reported and $3,400 is reported as ordinary income.
c.$2,750 is reported as ordinary income and $1,850 is reported as long-term capital gain.
d.$2,150 is reported as long-term capital gain and $2,400 is reported as ordinary income.
6. On June 7, 2009, Roland Rye purchased a $500 option from Sandra Suisse to purchase certain investment real estate prior to April 1, 2010. Roland Rye does not exercise the option; he lets it expire. Roland Rye will treat the $500 as:
a.A short-term capital gain
b.A short-term capital loss
c.A long-term capital gain
d.A long-term capital loss
7. Edward Point owns 50 percent of the outstanding stock in C Company. Another 30 percent of the stock is owned by a trust in which Edward's wife is the sole beneficiary. Edward sells a depreciable business asset to the trust. The gain or loss from the sale is treated as:
a.Capital gain or loss
b.Ordinary gain or loss
c.Part capital gain or loss and part ordinary gain or loss
d.None of the above
8. Bill Baxter is in the process of selling his hardware store, which he operates as a sole proprietorship. Bill has provided the following information:
Accounts receivable: $50,000
Inventories: 70,000
Buildings: 80,000
Franchise Agreement: 40,000
Goodwill: 60,000
Land: 80,000
Furniture and fixtures: 35,000
What is the value of Bill's capital assets?
a.$100,000
b.$120,000
c.$160,000
d.$295,000
9. Mike Nichols had the following capital transactions during the current tax year:
|
|
Short-term
|
Long-term
|
|
Gains
|
$6,000
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$23,000
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|
Losses
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9,000
|
10,000
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What portion of Mike's capital gains is included in his adjusted gross income?
a.$2,000
b.$3,000
c.$4,000
d.$5,000
e.$10,000
10. In 2009, Greg Johnson had taxable income of $100,000. This amount included short-term capital losses of $1,000 and long-term capital losses of $12,000. He had no other capital transactions in prior years. What is Greg's capital loss carryover to 2010?
a.$5,000
b.$7,000
c.$8,000
d.$10,000
e.$13,000
11. Dealers in securities are allowed capital gain classifications for certain types of stock. To which of the following securities does this apply?
(1) Securities held primarily for sale to customers
(2) Securities held for investment purposes if clearly identified as such before the end of business on the day acquired
(3) Securities acquired through the exercise of an option only if clearly identified as being held for investment by the close of the business on the day acquired
a.(1) only
b.(3) only
c.(1) and (2)
d.(1) and (3)
e.(2) and (3)
12. In 2011, a corporation had a net long-term capital gain of $130,000 and a net short-term capital loss of $150,000. What is the corporation's loss, and what is the first year to which it may be taken to offset available capital gain?
a.$10,000 long-term capital loss carried back to 2008
b.$20,000 short-term capital loss carried back to 2008
c.$15,000 short-term capital loss carried back to 2008
d.$20,000 long-term capital loss carried back to 2008
13. All of the following are true regarding the "sale or exchange" requirement for capital gain treatment to apply except:
a.Generally, for income tax purposes, the terms "sale" and "exchange" have the same meanings as in everyday business transactions.
b.The term "sale" includes both a foreclosure sale and a voluntary surrender of property by the equity owner.
c.A redemption or retirement of bonds is not treated as a sale or exchange of property.
d.The retirement of a bond at maturity or the significant modification of a bond is treated as a sale or trade.
14. If a taxpayer had elected to expense, under Code Sec. 179, all or part of qualifying depreciable business assets and the assets are disposed of in a later tax year, any gain recognized is treated as ordinary income to the extent of:
a.The amount expensed, plus depreciation deducted
b.Depreciation deducted only
c.Depreciation deducted over straight-line rate only
d.The amount expensed under Code Sec. 179 only
15. Bob Baxter, a farmer, removes and sells topsoil from his land. Which of the following best describes the tax treatment of the sale proceeds?
a.The proceeds from the sale are ordinary income.
b.The proceeds from the sale are capital gains.
c.The proceeds from the sale are long-term capital gains, provided Bob held the asset for more than one year.
d.The proceeds from the sale are short term capital gains, provided Bob held the asset for less than one year.
16. Ricardo and Pilar Santana are husband and wife. Ricardo owns stock having a cost basis of $8,000. He transfers the stock to Margot Jones for $6,000, and Margot resells the stock at the same price to Pilar, all under a prearranged plan. May Ricardo deduct any of his loss?
a.Yes, he may deduct the entire loss.
b.No, he may not deduct any of the loss.
c.He may deduct part of the loss.
d.None of the above.
17. Under the rules for sales of property between related persons (Code Sec. 1239), all of the following statements are true, except:
a.A welfare benefit fund (within the meaning of section 419 (e)) which is controlled directly or indirectly by the seller is considered a related person sale.
b.A person and a partnership in which he owns 50% of the profits interest are considered related persons.
c.A taxpayer and a trust in which the taxpayer's spouse has a remote contingent interest are related persons
d.Gain from the sale of property between related persons will be taxed as ordinary income.
18. International Corporation sells equipment used in its business at a loss of $30,000. The equipment had been purchased 17 months earlier. The $30,000 loss is treated as:
a.An ordinary loss
b.A Code Sec. 1245 loss
c.A Code Sec. 1231 loss
d.A casualty loss
19. On March 1, 2011, an individual taxpayer acquired "qualified small business stock". Assuming that he holds the stock for six years before selling it, and all of the requirements of Code Sec. 1202 are met, how much of the gain will he be able to exclude from income?
a.50 percent
b.75 percent
c.100 percent
d.0 percent
20. An active real estate dealer:
a.Will always be deemed to hold real property primarily for sale to customers in the ordinary course of business
b.Will always be deemed to hold real property for investment purposes
c.Will never be deemed to hold real property for investment purposes
d.None of the above
