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Exam 14: Property Transactions, capital Gains and Losses, sec1231, and Recapture Provisions

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Question 1

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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 2

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Willie is the owner of vacant land that he purchased in 2013 for $1,400,000 and held for investment.On January 22,2016,he was paid $145,000 for a thirteen-month option on the land by Susan.Susan could buy the land for an additional $1,200,000 by exercising the option.Susan had hoped to build a luxury home on the land,but was unable to get approval to build a big enough home to satisfy her needs.Consequently,Susan did not exercise her option and the option expired on February 22,2017.(1) What is Willie's basis,gain or loss,and type of gain or loss from these events? (2) What is Susan's basis,gain or loss,and type of gain or loss from these events?

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​(1) Willie held the land for investment...

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Question 3

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Vertigo,Inc.,has a 2017 net § 1231 loss of $64,000 and had a $32,000 net § 1231 gain in 2016.For 2017,Vertigo's net § 1231 loss is treated as:

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 the dolls.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 and sells them.Judith has no other gain or loss transactions for the year and is in the 28% marginal tax bracket.What issues do these facts create?

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.

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 2017?

Jambo invented a new flexible cover for a popular brand of cellphone,but did not have the finances to begin production of the cover.Instead,he sold all his rights to the invention (after patenting it) for $450,000 plus $.10 for each cover sold by the company that purchased the patent.Jambo had a zero tax basis for the invention.What is the character of his gain from disposition of the patent?

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

Martha is unmarried with one dependent and files as head of household.She had 2017 taxable income of $45,000 which included $16,000 of 0%/15%/20% net long-term capital gain.What is her tax on taxable income using the alternative tax on net long-term capital gain method?

In 2017,Satesh has $5,000 short-term capital loss,$13,000 0%/15%/20% long-term capital gain,and $7,000 qualified dividend income.Satesh is single and has other taxable income of $15,000.Which of the following statements is correct?

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.

Which of the following comparisons is correct?

The § 1245 depreciation recapture potential does not reduce the amount of the charitable contribution deduction under § 170.

Assume a building is subject to § 1250 depreciation recapture because bonus depreciation [§ 168(k) was used].The building is destroyed in a hurricane and this is the taxpayer's only casualty or theft for the year.In which of the following situations could there be a § 1250 depreciation recapture gain?

Section 1231 lookback losses may convert some or all of § 1245 gain into ordinary income.

Section 1250 depreciation recapture will apply when accelerated depreciation was used on property used outside the United States and the property is sold at a gain.

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.

Which of the following would be included in the netting of § 1231 gains and losses?

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