Question 1

Which of the following events causes the purchaser of an option to add the cost of the option to the basis of the property to which the option relates?

Accepted Answer

A)  The option is exercised.
B)  The option is sold.
C)  The option lapses.
D)  The option is rescinded.
E)  None of the above.F) C) and D)
G) D) and E)

Question 2

On June 1,2015,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 1,2015.On his 2015 tax return,what should Brady report?

Accepted Answer

A)  A $3,000 long-term capital loss.
B)  A $3,000 short-term capital loss.
C)  A $3,000 § 1231 loss.
D)  A $3,000 ordinary loss.
E)  None of the above.F) B) and E)
G) C) and E)

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Depreciation recapture under § 1245 and § 1250 is reported on Form 4797.

Accepted Answer

A) True 
 B)False

Question 5

A worthless security had a holding period of 6 months when it became worthless on December 10,2015.The investor who had owned the security had a basis of $20,000 for it.Which of the following statements is correct?

Accepted Answer

A)  The investor has a long-term capital loss of $20,000.
B)  The investor has a short-term capital loss of $20,000.
C)  The investor has a nondeductible loss of $20,000.
D)  The investor has a short-term capital gain of $20,000.
E)  None of the above.F) A) and D)
G) B) and E)

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Stella purchased vacant land in 2008 that she subdivided for resale as lots.All 10 of the lots were sold during 2015.The lots had a tax basis of $12,000 each and sold for $35,000 each.Stella made no substantial improvements to the lots.She acted as her own real estate broker;so there were no sales expenses for selling the lots.Which of the following statements is correct?

Accepted Answer

A)  Stella must hold the lots for at least 10 years before she is eligible for the special capital gain treatment of § 1237.
B)  The $230,000 gain from the sale of the ten lots is all ordinary income.
C)  All of the $230,000 gain from the sale of the ten lots is long-term capital gain.
D)  To be eligible for the special capital gain treatment of § 1237,Stella must be a real estate dealer.
E)  None of the above.F) A) and B)
G) A) and C)

Question 8

Section 1245 may apply to amortizable § 197 intangible assets.

Accepted Answer

A) True 
 B)False

Question 9

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:

Accepted Answer

A)  No gain or loss.
B)  Sold a long-term capital asset.
C)  Sold a short-term capital asset.
D)  An ordinary gain.
E)  None of the above.F) None of the above
G) B) and D)

Question 10

Section 1245 depreciation recapture potential does not carryover from the deceased taxpayer to the beneficiary taxpayer.

Accepted Answer

A) True 
 B)False

Question 11

Hiram is a computer engineer and,while unemployed,invents a switching device for computer networks.He patents the device,but does not reduce it to practice.Hiram has a zero tax basis for the patent.In consideration of $800,000 plus a $1 royalty per device sold,Hiram assigns the patent to a computer manufacturing company.Hiram assigned all substantial rights in the patent.Which of the following is correct?

Accepted Answer

A)  Hiram automatically has long-term capital gain from the lump sum payment,but not from the royalty payments.
B)  Hiram automatically has long-term capital gain from the royalty payments,but not from the lump sum payment.
C)  Hiram automatically has long-term capital gain from both the lump sum payment and the royalty payments.
D)  Hiram does not have automatic long-term capital gain from either the lump sum payment or the royalty payments.
E)  None of the above.F) A) and D)
G) C) and D)

Question 12

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

Accepted Answer

A)  The restaurant's tables and chairs.
B)  A portable sound system used to play "theme music" for the restaurant.
C)  The restaurant building that is an asset of the sole proprietorship.
D)  An interest-bearing savings account used to keep the restaurant's excess cash.
E)  None of the above.F) D) and E)
G) A) and D)

Question 13

The maximum amount of the unrecaptured § 1250 gain (25% gain) is the depreciation taken on real property sold at a recognized gain.

Accepted Answer

A) True 
 B)False

Question 14

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.

Accepted Answer

A) True 
 B)False

Question 15

The maximum § 1245 depreciation recapture generally equals the accumulated depreciation.

Accepted Answer

A) True 
 B)False

Question 16

The possible holding periods for capital assets include:

Accepted Answer

A)  Short-term = held 14 months or less.
B)  Long-term = greater than six months.
C)  Long-term = greater than 12 months.
D)  Short-term = greater than 12 months.
E)  None of the above.F) A) and D)
G) C) and D)

Question 17

Property sold to a related party purchaser that is depreciable by the purchaser may cause the seller to have ordinary gain.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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?

Accepted Answer

A)  Lana has $10 of long-term capital loss.
B)  Lana has $190 of long-term capital gain.
C)  Lana has no capital gain or loss.
D)  Lana has $190 of long-term capital loss.
E)  None of the above.F) A) and D)
G) C) and D)

Question 20

Recognized gains and losses from disposition of a capital asset may occur as a result of a:

Accepted Answer

A)  Sale.
B)  Exchange.
C)  Casualty.
D)  Condemnation.
E)  All of the above.F) All of the above
G) None of the above

Exam 14: Property Transactions: Capital Gains and Losses, section 1231 and Recapture Provisions

Section 1245 may apply to amortizable § 197 intangible assets.

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
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Depreciation recapture under § 1245 and § 1250 is reported on Form 4797.

Correct Answer
verified

A worthless security had a holding period of 6 months when it became worthless on December 10,2015.The investor who had owned the security had a basis of $20,000 for it.Which of the following statements is correct?

Correct Answer
verified

Correct Answer
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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?

Correct Answer
verified

Recognized gains and losses from disposition of a capital asset may occur as a result of a:

Correct Answer
verified

Correct Answer
verified

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.

Correct Answer
verified

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

Correct Answer
verified

Which of the following events causes the purchaser of an option to add the cost of the option to the basis of the property to which the option relates?

Correct Answer
verified

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:

Correct Answer
verified

Property sold to a related party purchaser that is depreciable by the purchaser may cause the seller to have ordinary gain.

Correct Answer
verified

The possible holding periods for capital assets include:

Correct Answer
verified

The maximum § 1245 depreciation recapture generally equals the accumulated depreciation.

Correct Answer
verified

The maximum amount of the unrecaptured § 1250 gain (25% gain) is the depreciation taken on real property sold at a recognized gain.

Correct Answer
verified

Section 1245 depreciation recapture potential does not carryover from the deceased taxpayer to the beneficiary taxpayer.

Correct Answer
verified

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

Correct Answer
verified

Exam 14: Property Transactions: Capital Gains and Losses, section 1231 and Recapture Provisions

Section 1245 may apply to amortizable § 197 intangible assets.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Depreciation recapture under § 1245 and § 1250 is reported on Form 4797.

Correct AnswerverifiedShow Answer

A worthless security had a holding period of 6 months when it became worthless on December 10,2015.The investor who had owned the security had a basis of $20,000 for it.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Recognized gains and losses from disposition of a capital asset may occur as a result of a:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following events causes the purchaser of an option to add the cost of the option to the basis of the property to which the option relates?

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

Property sold to a related party purchaser that is depreciable by the purchaser may cause the seller to have ordinary gain.

Correct AnswerverifiedShow Answer

The possible holding periods for capital assets include:

Correct AnswerverifiedShow Answer

The maximum § 1245 depreciation recapture generally equals the accumulated depreciation.

Correct AnswerverifiedShow Answer

The maximum amount of the unrecaptured § 1250 gain (25% gain) is the depreciation taken on real property sold at a recognized gain.

Correct AnswerverifiedShow Answer

Section 1245 depreciation recapture potential does not carryover from the deceased taxpayer to the beneficiary taxpayer.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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