ch15 Flashcards
A net gain on an asset is the amount:
subject to capital gain taxation.
remaining after capital losses are deducted from capital gains.
Net gain is what is remaining after capital losses are deducted from capital gains and represents the amount subject to capital gain taxation.
All of the following are considered capital improvements or expenditures when determining adjusted basis, EXCEPT:
replacing a broken window.
A broken widow is considered a maintenance item and not a capital improvement.
A gain is considered taxable when:
the property is sold.
A gain is taxable when realized, which would be when the property is sold.
If less than 100% of the sales price is received in the year of sale, the tax code considers it to be:
an installment sale.
An installment sale under the tax code is any sale in which 100% of the sales price is not received in the year sold.
A boot is used in which one of the following?
Exchanging
Boot is anything of value given in an exchange that is not “like property”.
Under current law, a qualified taxpayer may exclude the entire gain on the sale of their principal residence up to __________ if filing a single return.
$250,000
$250,000 if filing as a single and $500,000 if filing as married.
In order to qualify for an exclusion from capital gain on a residential property, the homeowner must:
have owned and occupied the property for two of the previous five years.
The homeowner must have owned and occupied the property for two of the previous five years.
A homeowner may deduct from income tax liability:
uninsured losses to property.
A homeowner may deduct uninsured losses to property. A homeowner’s residence is not eligible for a capital loss deduction if the home sells for less than is invested, a personal residence cannot be depreciated, and condominium assessments are not tax deductible.
Which of the following would NOT be considered like properties under a 1031 tax exchange?
An unimproved lot for timber
Real property must be exchange for real property.
Sean O’Brien just sold the house he purchased 18 months ago for $185,000. His adjusted basis is $170,000. He will pay 6% in sales commissions and $3,500 in closing costs. For federal income tax purposes, what is the amount of Sean’s capital gain?
$400
Sean earned $15,000 on the sale of the house ($185,000 - $170,000 = $15,000)
$185,000 x .06 commission = $11,100
$11,100 + $3,500 closing costs = $14,600
$15,000 gross - $14,600 expense = $400 capital gain
Mr. and Mrs. Alexander paid $16,776 in interest during the tax year on an interest-only note secured by a mortgage on their home. How much can be used as a deduction when filing their income taxes?
All of it can be deducted
The note is an interest only note, all of which is deductible.
Which one of the following types of property can be depreciated?
An apartment building
Land can never be depreciated, nor can a principal residence. Only the apartment building, as an investment property, can be depreciated.
Cost recovery is a term most closely related to:
depreciation.
Cost recovery is the concept is that the improvements are declining in value over their economic life and the owner of trade, business, or investment property is allowed to claim an annual expense for loss of the improvements (depreciation) in an effort to recover the cost of the investment.
Which of the following types of properties are subject to capital gain treatment?
An apartment building,
Raw land,
A personal residence
An apartment building and raw land are investment properties, and are subject to capital gains treatment. A personal residence is a personal use property that is also subject to capital gain treatment. Houses built by a builder for resale are inventory, subject to ordinary income tax treatment and subsequently not subject to the more favorable capital gain tax treatment.
