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Exam 16: Property Transactions: Capital Gains and Losses

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Question 1

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Harry inherited a residence from his mother when she died.The mother had a tax basis of $566,000 for the residence when she died and the residence was worth $433,000 at the date of her death.Which of the statements below is correct?

A) Harry's holding period for the residence includes his mother's holding period for the residence.
B) Harry's holding period for the residence does not include his mother's holding period for the residence.
C) Harry's holding period for the residence is automatically long term.
D) b and c
E) None of the above.

F) A) and B)
G) B) and E)

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Question 2

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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.

A) True
B) False

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Question 3

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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.

In early 2011,Wendy paid $66,000 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 2012 after 14 months.How should Wendy treat these events in 2011? 2012?

Carol had the following transactions during 2012: a painting held for two years and sold at a gain of $65,000; 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?

Harold is a head of household,has $27,000 of taxable income in 2012 from non-capital gain or loss sources,and has the following capital gains and losses: What is Harold's taxable income and the tax on that taxable income?

A franchisor licenses its mode of business operation to a franchisee.

Robin Corporation has ordinary income from operations of $30,000,net long-term capital gain of $10,000,and net short-term capital loss of $15,000.What is the taxable income for 2012?

Suzy purchased vacant land in 2005 that she subdivided for resale as lots.All 10 of the lots were sold during 2012.The lots had a tax basis of $9,000 each and sold for $45,000 each.Suzy 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?

Recognized gains and losses must be properly classified.Proper classification depends upon:

The tax law requires that capital gains and losses be separated from other types of gains and losses.Among the reasons for this treatment are:

Hiram is a computer engineer and,while unemployed,invents a switching device for computer networks.He patents the device,but does not reduce it to practice.Hiram has a zero tax basis for the patent.In consideration of $800,000 plus a $1 royalty per device sold,Hiram assigns the patent to a computer manufacturing company.Hiram assigned all substantial rights in the patent.Which of the following is correct?

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

Tom has owned 40 shares of Orange Corporation stock for five years.He sells the stock short for a total of $1,100.One month later,he closes the short sale by purchasing and delivering 40 shares of Orange Corporation stock for a total of $600.Tom has a $500 short-term capital gain.

Theresa and Oliver,married filing jointly,and both over 65 years of age,have no dependents.Their 2012 income tax facts are: What is their taxable income for 2012?

Tan,Inc.,has a 2012 $50,000 long-term capital gain included in its $185,000 taxable income.Which of the following is correct?

Ramon is in the business of buying and selling securities.Which of the following is a capital asset for Ramon?

On June 1,2012,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 1,2012.On his 2012 tax return,what should Brady report?

As a general rule,the sale or exchange of an option to buy or sell property results in capital gain or loss if the property subject to the option is (or would be)a capital asset in the hands of the option holder.

When an individual taxpayer has a net long-term capital gain that includes both 25% gain and 0%/15% 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?