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Exam 8: Capital Gains and Losses

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Question 61

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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.

A) True
B) False

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Question 62

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For § 1245 recapture to apply, accelerated depreciation must have been taken on the property.

A) True
B) False

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Question 63

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The following assets in Jack's business were sold in 2017: $\begin{array}{lll}\text { Asset } & \text { Holding Period } & \text { Gain/(Loss) } \\\text { Office Equipment } & 6 \text { years } & \$ 1,100 \\\text { Automobile } & 8 \text { months } & (\$ 800) \\\text { ABC Stock (capital asset) } & 2 \text { years } & \$ 1,400\end{array}$ ? The office equipment had a zero adjusted basis and was purchased for $8,000.The automobile was purchased for $2,000 and sold for $1,200.The ABC stock was purchased for $1,800 and sold for $3,200.In 2017 (the year of sale) , Jack should report what amount of net capital gain and net ordinary income?

Once § 1231 gains are netted against § 1231 losses, if the gains exceed the losses, the net gain is offset by the "lookback" nonrecaptured § 1231 losses.

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.

Which of the following comparisons is correct?

The only things that the grantee of an option may do with the option are exercise it or let it expire.

Nonrecaptured § 1231 losses from the six prior tax years may cause current year net § 1231 gain to be treated as ordinary income.

Involuntary conversion gains may be deferred if the proceeds of the involuntary conversion are reinvested.

In early 2016, Wanda paid $33,000 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 2017 after 14 months.How should Wanda treat these events in 2016? 2017?

Sharon has the following results of netting her short-term and long-term capital gains and losses for 2017: $56,000 short-term capital loss, and $82,000 net long-term capital gain ($21,000 0%/15%/20% long-term capital gain, and $61,000 25% long-term capital gain). (a) What is her net capital gain or loss for 2017? (b) If there is a net capital loss, how much of the loss and what type of loss carries over to 2018? (c) If there is a net long-term capital gain, what is it made up of?

Spencer has an investment in two parcels of vacant land.Parcel 1 is a capital asset and parcel 2 is a § 1231 asset.Spencer already has short-term capital loss for the year he would like to offset with capital gain.Spencer has § 1231 lookback loss that exceeds the gain from the disposition of either land parcel.Spencer only wants to sell one land parcel and each of them would yield the same amount of gain.The gain that would be recognized exceeds the short-term capital loss Spencer already has.Which of the statements below is correct?

A business taxpayer sold all the depreciable assets of the business, calculated the gains and losses, and would like to know the final character of those gains and losses.The taxpayer had $353,000 of adjusted gross income before considering the gains and losses from sale of the business assets.The taxpayer had unrecaptured § 1231 lookback loss of $12,000.What is the treatment of the gains and losses summarized in the chart below after all possible netting and reclassification has been completed? What is the taxpayer's adjusted gross income? (Ignore the self-employment tax deduction.) $\begin{array} { l c c c c } \text { Asset } & \text { Purchase Date } & \text { Sale Date } & \text { Depreciation } & \text { Gain (Loss) } \\\text { Machine \#1 } & 10 / 10 / 15 & 11 / 11 / 17 & \$ 323,000 & \$ 66,000 \\\text { Machine \#2 } & 10 / 02 / 15 & 11 / 11 / 17 & 65,000 & ( 15,000 ) \\\text { Machine \#3 } & 09 / 23 / 13 & 11 / 11 / 17 & 183,000 & 23,000 \\\text { Machine \#4 } & 09 / 23 / 13 & 11 / 11 / 17 & 28,000 & 64,000\end{array}$

Verway, Inc., has a 2017 net § 1231 gain of $55,000 and had a $62,000 net § 1231 loss in 2016.For 2017, Verway's net § 1231 gain is treated as:

A business machine purchased April 10, 2016, for $62,000 was fully depreciated in 2016 using § 179 immediate expensing.On August 15, 2017, the sole proprietor who owned the machine gave it to his son.On that date, the machine's fair market value was $57,000.The son did not use the machine in business or hold it as inventory and the machine was sold on November 22, 2017, for $53,000.What is the amount and nature of the gain or loss from disposition of the machine? Where is it reported in the son's tax return?

Section 1231 property includes nonpersonal use property where casualty gains exceed casualty losses for the taxable year.

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.

On June 10, 2017, 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?

Which of the following would extinguish the § 1245 recapture potential?

Red Company had an involuntary conversion on December 23, 2017.The machinery had been acquired on April 1, 2015, for $49,000 and its adjusted basis was $14,200.The machinery was completely destroyed by fire and Red received $10,000 of insurance proceeds for the machine and did not replace it.This was Red's only casualty or theft event for the year.As a result of this event, Red initially has: