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| 1 | |
In general, the basis of property purchased is the cost of the asset including cash, debt obligations, and other property or services included in acquiring the asset. |
| | A) | True |
| | B) | False |
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| 2 | |
The basis of property transferred to a taxpayer from a spouse or former spouse incident to a divorce is the FMV of the property at the date the divorce was final. |
| | A) | True |
| | B) | False |
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| 3 | |
Section 1221 assets are any asset used in a trade or business. |
| | A) | True |
| | B) | False |
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| 4 | |
Capital assets are usually defined by the IRC as any asset used for personal or investment purposes and sometimes are defined by the IRC as what they are not. |
| | A) | True |
| | B) | False |
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| 5 | |
Ordinary gains or losses produced outside the normal course of business relate to the sale of business property held less than one year and do not include the sale of accounts receivable. |
| | A) | True |
| | B) | False |
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| 6 | |
All gains and losses on the sale of property that was held for more than one year is subject to preferential tax rates. |
| | A) | True |
| | B) | False |
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| 7 | |
All net losses exceeding the $3,000 per year are carried over as long-term losses because they will be have occurred more than one year ago. |
| | A) | True |
| | B) | False |
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| 8 | |
For sales of Section 1231 business property, long-term gains are taxed at preferential rates while long-term losses are considered ordinary losses and used in the year they were incurred. |
| | A) | True |
| | B) | False |
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| 9 | |
Any Section 1245 gain is recognized as "ordinary" to the extent of the depreciation taken. |
| | A) | True |
| | B) | False |
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| 10 | |
To figure the gain or loss from the sale of property received as a gift, the donee must know the donor's adjusted basis as well as the FMV at the date of the gift. |
| | A) | True |
| | B) | False |
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| 11 | |
A taxpayer purchased land in 2005 for $26,000 and sold it in 2007 for $31,000 cash. The buyer also assumed the remaining mortgage of $ 13,000. What is the amount gain recognized on the sale of the land? |
| | A) | $5,000 gain |
| | B) | $8,000 loss |
| | C) | $8,000 gain |
| | D) | $18,000 gain |
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| 12 | |
The gain or loss on the sale of property held as an investment is recorded on which one of the following forms or schedules? |
| | A) | Form 4797 if the sale was from an asset used for investment purposes by a taxpayer who purchased it with company money as a sole proprietor. |
| | B) | Schedule D if the sale was an asset used in a trade or business by a sole proprietor. |
| | C) | Schedule D if the sale was an asset used for investment purposes by a taxpayer. |
| | D) | Form 4797 regardless if the asset was purchased for investment if the taxpayer is a sole proprietor. |
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| 13 | |
The following is true if land (the purest capital asset) is sold except: |
| | A) | The gain on the sale of land used in a business is recorded on Form 4797. |
| | B) | The gain on the sale of land used in a business is recorded on Schedule D. |
| | C) | The gain on the sale of land used in a business is ordinary income and can appear on Schedule C if it is owned by a sole proprietor. |
| | D) | The gain on the sale of land appears on the Form 1040 under the heading "other income". |
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| 14 | |
All of the following statements regarding Section 1231 are incorrect except: |
| | A) | Property used in a trade or business regardless of how long the asset is held. |
| | B) | Property used in a trade or business that may or may not be subject to depreciation and held for more than one year. |
| | C) | Property used in a trade or business that is subject to depreciation and held for more than one year. |
| | D) | Property used in a trade or business that may or may not be subject to depreciation and held for less than one year. |
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| 15 | |
Which of the following is a Section 1221 asset? |
| | A) | Rental property |
| | B) | Business inventory |
| | C) | Gold, silver, or other metals |
| | D) | An original painting created by the taxpayer after May 17, 2006 |
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| 16 | |
A capital asset includes all the following except: |
| | A) | A taxpayer's home. |
| | B) | Inherited property. |
| | C) | Real estate used in the taxpayer's trade or business. |
| | D) | Real estate held for investment. |
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| 17 | |
Samson purchased some equipment for $86,749 on March 15, 2006. He decided he did not need the equipment and sold it on March 10, 2007 for $82,000. The equipment was subject to depreciation of $ 16,851 for 2006 and 2007. What gain or loss will Samson recognize on the sale of the equipment? |
| | A) | $4,749 capital loss |
| | B) | $4,749 ordinary loss |
| | C) | $12,102 capital gain |
| | D) | $12,102 ordinary gain |
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| 18 | |
Which of the following statements is correct regarding the sale of ordinary assets? |
| | A) | the sale of an asset outside the normal course of a trade or business is a sale of an ordinary asset. |
| | B) | the sale of any business property regardless of holding period is a sale of an ordinary asset. |
| | C) | the sale of inventory for a profit is considered to be a sale of an ordinary asset. |
| | D) | the sale of business property held for more than a year is a sale of an ordinary asset. |
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| 19 | |
Padraic purchased 50 shares of stock as an investment for the purchase price of $1,500 in 2004. In 2007 when the fair market value of the stock was $2,000, Padraic gave the stock to his sister, Fiona. If no gift tax is paid and Fiona sells the stock for $2,300, she will recognize: |
| | A) | no gain or loss |
| | B) | $300 gain |
| | C) | $500 gain |
| | D) | $800 gain |
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| 20 | |
Amal gave Dora 100 shares of stock on April 3, 2006. Amal originally paid $3,100 for the stock on January 5, 2006. At the date of the gift, the fair market value of the stock was 2,800. If no gift tax is paid and Dora sells the stock for $2,700 on August 31, 2007, she will recognize: |
| | A) | a short term capital loss |
| | B) | an ordinary loss |
| | C) | a long-term loss |
| | D) | no loss on the sale of stock given as a gift |
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| 21 | |
In 2007, Ann had a net capital loss of $10,000 and taxable income of $100,000. What is Ann's loss carry forward to 2008? |
| | A) | $0 |
| | B) | $3,000 |
| | C) | $5,000 |
| | D) | $7,000 |
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| 22 | |
Jack purchased 100 shares of Ford stock on February 22, 2006. If he sells the stock on February 21, 2007, what is the character of the sale? |
| | A) | If the sale produces a gain, the gain is taxed at preferential rates because the holding period requirement does not apply to stock sales. |
| | B) | If the sale produces a loss, the entire loss can be taken only in the year of the sale because the stock was held for less than one year. |
| | C) | Regardless of whether the sale produces a gain or loss, the transaction qualifies for preferential treatment because the asset sold is stock. |
| | D) | Regardless of whether the sale produces a gain or loss, the transaction does not qualify for preferential treatment because the stock was hot held for more than one year. |
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| 23 | |
Gabriella, a single taxpayer, has wage income of $150,000. In addition, she has $7,000 in long-term capital losses, $1,000 in long-term capital gains, $3,000 in short-term capital gains, and $1,000 in short-term losses. What is Gabriella's AGI for 2007? |
| | A) | $146,000 |
| | B) | $147,000 |
| | C) | $150,000 |
| | D) | $151,000 |
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| 24 | |
Demetrius had a $4,000 short-term loss and a $3,000 long-term gain from a collectible, a $2,000 gain from Section 1250 unrecaptured property. What is the netting effect of these gains and losses on his 1040? |
| | A) | $3,000 short-term loss is offset against the $3,000 collectible first, then the remaining $1,000 against the Section 1250 property, with a $1,000 gain taxed at 25% |
| | B) | The $,4000 short-term loss is allowed to be taken in total as an ordinary loss, and the net long-term gain of $5,000 is added to his 1040 and taxed at 5% or 15% depending on his regular tax bracket. |
| | C) | $2000 short-term loss is offset against the Section 1250 property first, then the remaining $2,000 against the collectible gain leaving $1,000 taxed at 28% |
| | D) | As each of these gains and losses are taxed at different rates, there is no netting of short-term and long-term gains or losses. |
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| 25 | |
Keiko sells a piece of equipment used in her business for $14,853 on August 10, 2007. The equipment was purchased on January 4, 2006 at a cost of $12,849. Keiko has taken $3,855 of depreciation on the equipment. What is the amount and classification of the gain on the sale by Keiko? |
| | A) | $5,859 ordinary income under Section 1245 |
| | B) | $5,859 Section 1231 gain |
| | C) | $3,855 ordinary income under Section 1245 and $2,004 Section 1231 gain |
| | D) | $3,855 Section 1231 gain and $2,004 ordinary income under Section 1245 |
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| 26 | |
Aneta sold an apartment building for $713,470 in 2007. She purchased the building in 2001 for $600,000 and has taken $151,806 in depreciation on the building. Assuming Aneta is in the 33% tax bracket, how is her gain taxed? |
| | A) | $113,470 at 5% and $151,806 at 28% |
| | B) | $113,470 at 25% and $151,806 at 15% |
| | C) | $151,806 at 28% and $113,470 at 15% |
| | D) | $151,806 at 25% and $113,470 at 15% |
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| 27 | |
Genevieve buys a piece of sculpture from a collector for resale in her gallery. She purchased the sculpture for $5,000 and sold it 24 months later for $9,000. What are the nature and the amount of the gain on the sale? |
| | A) | $4,000 gain subject to 28% tax rate. |
| | B) | $4,000 Section 1245 gain. |
| | C) | $4,000 ordinary income |
| | D) | $5,000 ordinary gain and $4,000 Section 1231 gain. |
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| 28 | |
Pietro received shares of stock as a gift from his uncle in 2005. At the time of the gift, the stock had a FMV of $5,000. The uncle purchased the stock in 2003 and had a basis of $6,000. If Pietro sells the stock for $7,000, he will report a |
| | A) | $1,000 ordinary gain |
| | B) | $1,000 capital gain |
| | C) | $2,000 ordinary gain |
| | D) | $2,000 capital gain |
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| 29 | |
Geraldine inherited a piece of land when her father Albert died on July 26, 2006. The FMV of the land at the date of death was $40,000 and cost Albert $20,000 in 2000. Geraldine sold the land on March 29, 2007 for $45,000. What is the amount and nature of the gain on the sale? |
| | A) | $5,000 ordinary gain |
| | B) | $5,000 capital gain |
| | C) | $25,000 ordinary gain |
| | D) | $25,000 capital gain |
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| 30 | |
Oliver purchased the following stock of Doggie Treats, Inc.
2005 10 shares @ $10
2006 10 shares @ $12
2007 20 shares @ $14 If Oliver sold 25 shares of stock in 2007 for $265, what is the loss on the sale of the stock? Assume the shares purchased in 2006 were held for more than one year. |
| | A) | $9.50 short term loss and $38.00 long term loss |
| | B) | $9.50 long term loss and $38.00 short term loss |
| | C) | $8.00 short term loss and $17.00 long term loss |
| | D) | $8.00 long term loss and $17.00 short term loss |
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