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Exam 16: Property Transactions: Capital Gains and Losses

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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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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 3

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On January 10,2014,Wally sold an option for $2,000 on vacant land he held as an investment.He had purchased the land in 2010 for $76,000.The option allowed the option holder to purchase the property for $122,000 plus the cost of the option.On March 1,2014,the option holder exercised the option.What is the amount and nature of Wally's gain or loss from disposition of the land?

Phil's father died on January 10,2014.The father had owned stock for 20 years with a basis of $45,000 that was transferred to Phil as a gift on August 10,2013,when the stock was worth $430,000.His father paid gift tax of $31,000.This stock was worth $566,000 at the date of the father's death.Phil sold the stock for $545,000 net of commissions on February 23,2014.What is the amount and nature of Phil's gain or loss from disposition of this property?

Larry was the holder of a patent on a video game.During 2014,he sold all substantial rights in the patent for $365,000 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 an $86,000 basis for the patent.During 2014,he received $30,000 in royalties.What is the nature and amount of Larry's gain?

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?

In 2014,Mark has $18,000 short-term capital loss,$7,000 28% gain,and $6,000 0%/15%/20% gain.Which of the statements below is correct?

A security that was purchased by an individual and qualifies as § 1244 stock becomes worthless.The taxpayer is single and the loss is $30,000.The loss is treated as an ordinary loss.

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.

The holding period of property given up in a like-kind exchange includes the holding period of the asset received if the property that has been exchanged is a capital asset.

Ranja acquires $200,000 face value corporate bonds for $186,000 when the bonds are issued.He holds the bonds as an investment for two years and then sells them for $198,000.He amortizes $2,000 of the OID.What tax issues does Ranja have with respect to these bonds?

A business taxpayer sells inventory for $80,000.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:

The possible holding periods for capital assets include:

Virgil was leasing an apartment from Marple,Inc.Marple paid Virgil $1,000 to cancel his lease and move out so that Marple could demolish the building.As a result:

Ryan has the following capital gains and losses for 2014: $6,000 STCL,$5,000 28% gain,$2,000 25% gain,and $6,000 0%/15%/20% gain.Which of the following is correct:

In 2013,Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction.In 2014,Jenny has an $18,000 0%/15%/20% long-term capital gain and no other capital gain or loss transactions.Which of the statements below is correct?

Carol had the following transactions during 2014: a painting held for two years and sold at a gain of $85,000;100 shares of Gray stock held six months and sold for a loss of $6,000;50 shares of Yellow stock held 18 months and sold for a gain of $36,000.Carol also had $264,000 of taxable income from other sources than these property transactions.What is Carol's net capital gain or loss and what is her taxable income?

An individual taxpayer received a valuable painting from his uncle,a famous painter.The painter created the painting.After the taxpayer held the painting for two years,he sold it for a $400,000 gain.The gain is a long-term capital gain.

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 franchisor licenses its mode of business operation to a franchisee.