Chapter 14 T/F Flashcards
A capital asset includes all property held by the taxpayer.
False. A capital asset as defined in the Internal Revenue Code includes all property held by the taxpayer whether or not it is connected with the taxpayer’s trade or business, with certain exceptions. Some of the exceptions are: stock-in-trade or other property held primarily for sale to customers in the ordinary course of the taxpayer’s business; depreciable or real property used in the taxpayer’s trade or business; and accounts receivable acquired in the ordinary course of business for services rendered or from the sale of inventory.
Sales of capital assets held by individuals for more than 12 months result in long-term capital gains and/or losses.
True
Sales of collectibles qualify for the lowest maximum tax rate on long-term capital gains of individuals.
False. “Collectibles” gain is subject to a maximum capital-gains rate of 28 percent.
The portion of an individual’s long-term capital gains from the sale of real estate that is attributable to unrecaptured depreciation is subject to a maximum tax rate of 25 percent.
True
Individuals may deduct capital losses in full against capital gains.
True
Individuals may deduct up to $5,000 of net capital losses per year against ordinary income
False. The maximum annual amount of net capital losses that can be deducted against ordinary income is $3,000.
Excess capital losses that an individual cannot use in the current year can be carried forward and deducted in future years.
True
Short-term capital gains and losses of individual taxpayers are netted together to determine the taxpayer’s net short-term capital gain or loss.
True
On the sale of depreciable real property held for more than 1 year and used in the taxpayer’s trade or business, all gains and losses are treated as capital gains and losses.
False. On the one hand, if depreciable real property used in a trade or business (Sec. 1231 property) is sold and the gains exceed the losses, the resulting net gain is treated as a long-term capital gain. On the other hand, if the losses exceed the gains, the resulting net loss is treated as an ordinary loss, deductible in full from the taxpayer’s ordinary income. However, net Sec. 1231 losses are subject to a special recapture provision
Sec. 1231 property used in a trade or business receives very preferential tax treatment; that is, gains from the sale of such property are capital gains while losses are fully deductible against ordinary income.
True
