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Exam 16: Property Transactions: Capital Gains and Losses

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Question 1

True/False

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

A) True
B) False

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Question 2

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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) True
B) False

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Question 3

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

The tax law requires that capital gains and losses be separated from other types of gains and losses because an alternative tax calculation may be used when taxable income includes net long-term capital gain.

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 them.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, which she accepts.Judith has no other gain or loss transactions for the year and is in the 24% marginal tax bracket.What issues do these facts create?

When an individual taxpayer has a net long-term capital gain that includes both a 28% gain and a 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?

May an individual who has purchased a patent be a holder of that patent?

The effect of § 1244 may be to convert a capital loss into an ordinary loss deductible for adjusted gross income.

If a capital asset is sold at a gain, the holding period is important.

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.

Emilio owns vacant land he is holding for investment.Two years ago he granted an option to purchase the land.The option grantee paid $25,000 for the option.This year the option expired unexercised.As a result, Emilio has:

Theresa and Oliver, both over 65 years of age and married filing jointly, have no dependents.Their 2019 income tax facts are: $\begin{array} { l r } \text { Theresa's wages } & \$ 165,000 \\\text { Oliver's wages } & 33,000 \\\text { Short-term capital gain } & 36,000 \\\text { Long-term capital loss } & ( 41,000 )\end{array}$ What is their taxable income for 2018?

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.

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 and has an $8,000 capital loss.

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

Larry was the holder of a patent on a video game.During 2019, 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 2019, he received $30,000 in royalties.What is the nature and amount of Larry's gain?

Harold is a head of household, has $27,000 of taxable income in 2019 from noncapital gain or loss sources, and has the following capital gains and losses: $\begin{array} { l r } 28 \% \text { long-term capital gain } & \$ 4,300 \\28 \% \text { long-term capital loss } & ( 2,000 ) \\0 \% / 15 \% / 20 \% \text { long-term capital gain } & 19,000 \\\text { Short-term capital loss } & ( 1,700 )\end{array}$ What is Harold's taxable income and the tax on that taxable income (ignore the standard deduction)?

There can be three subgroups within the long-term capital gain or loss group - 0%/15%/20%, 25%, and 28%.

When a patent is transferred, the most common forms of payment received by the transferor are a lump sum and/or a periodic payment.

If the holder of an option fails to exercise the option, the lapse of the option is considered a sale or exchange on the option expiration date.