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Exam 16: Property Transactions: Capital Gains and Losses

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Question 41

True/False

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

A) True
B) False

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Question 42

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

A) True
B) False

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Question 43

Multiple Choice

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The three tax statuses are:

A security that is a capital asset becomes worthless.The loss is deemed to have occurred on the day that the security was declared worthless.

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?

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 § 1231 loss.

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

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?

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?

"Collectibles" held long-term and sold at a gain are subject to maximum tax rate of 28%.An individual taxpayer recently sold a baseball card for $400.The card had been held for several years and $40 was originally paid for it.The card depicts a famous baseball player (who hit 73 home runs in a recent season)when he was a rookie in the major leagues.Explain why the baseball card is or is not a collectible.

A business taxpayer sells inventory for $40,000.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:

Siva operates a retail music store as a sole proprietorship.Which of the following items are capital assets in the hands of Siva?

The 2011 "Qualified Dividends and Capital Gain Worksheet" is used:

On June 10,2012,Ebon,Inc.acquired an office building as a result of a like-kind exchange.Ebon had given up a factory building that it had owned for 26 months as part of the like-kind exchange.Which of the statements below is correct?

Seamus had $16,000 of net short-term capital loss in 2011.In 2012,Seamus has $17,000 of long-term capital loss and $26,000 of long-term capital gain.Which of the following statements is correct?

Larry was the holder of a patent on a video game.During 2012,he sold all substantial rights in the patent for $345,000 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 $56,000 basis for the patent.During 2012,he received $10,000 in royalties.What is the nature and amount of Larry's gain?