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Exam 16: Property Transactions: Capital Gains and Losses

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Question 21

Multiple Choice

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A lessor is paid $45,000 by its commercial tenant as a lease cancellation fee. The tenant wanted to get out of its lease so it could move to a different building. The lessor had held the lease for three years before it was canceled. The lessor had a zero tax basis for the lease. The lessor has received:

A) Ordinary income of $45,000.
B) Long-term capital gain of $45,000.
C) Short-term capital gain of $45,000.
D) Neither gain nor loss.
E) None of the above.

F) B) and D)
G) A) and C)

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Question 22

True/False

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

A) True
B) False

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Question 23

Multiple Choice

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Seamus had $16,000 of net short-term capital loss in 2016. In 2017, Seamus has $17,000 of long-term capital loss and $26,000 of long-term capital gain. Which of the following statements is correct?

Stanley operates a restaurant as a sole proprietorship. Which of the following items are capital assets in the hands of Stanley?

Which of the following is correct concerning short sales of stock?

An individual taxpayer with 2017 net short-term capital loss of $5,000 generally can deduct up to $3,000 for AGI and carry the balance forward to 2018.

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?

Michael is in the business of creating posters (display art) for the movie industry. He creates a poster and sells it for a lump sum. He has:

The tax law requires that capital gains and losses be separated from other types of gains and losses because there are limitations on the deduction of net capital losses.

Violet, Inc., has a 2017 $80,000 long-term capital gain included in its $285,000 taxable income. Which of the following is correct?

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.

Cason is filing as single and has 2017 taxable income of $36,000 which includes $34,000 of 0%/15%/20% net long-term capital gain. What is his tax on taxable income using the alternative tax method? Note: Use the tax rate schedule rather than the tax table.

When an individual taxpayer has a net long-term capital gain that includes both 28% gain and 0%/15%/20% 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?

On January 18, 2016, Martha purchased 200 shares of Blue Corporation stock for $2,000. On November 11, 2017, she sold short 200 shares of Blue Corporation stock which she borrowed from her broker for $2,300. On February 10, 2018, Martha closed the short sale by delivering the 200 shares of Blue Corporation stock which she had acquired in 2016. On that date, Blue Corporation stock had a market price of $4 per share. What is Martha's recognized gain or loss and its character in 2017? In 2018?

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

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?

On June 1, 2017, 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, 2017. On his 2017 tax return, what should Brady report?

Individuals who are not professional real estate developers may get capital gain treatment for sale of their real property if they engage only in limited development activities.

Hank inherited Green stock from his mother when she died. The mother had a tax basis of $366,000 for the Green stock when she died and the Green stock was worth $437,000 at the date of her death. Which of the statements below is correct?

A net short-term capital loss first offsets any 28% net long-term capital gain before it offsets either 25% net long-term capital gain or 0%/15%/20% net long-term capital gain.