Chapter 6

Question 1

What are some common capitalized costs?

Answer 1

brokerage commissions
pre-purchase taxes
sales tax
excise tax 
title transfer tax
title insurance
recording fees
attorney fees
document review, prep
appraisal fees
freight 
installation
testing
off site storage

Question 2

When do uniform capitalization rules not apply?

Answer 2

when property is acquired for resale and past 3 years annual receipts do not exceed $10 million

Question 3

Is a sale of restricted stock to an employee treated as gross income?

Answer 3

To the extent that FMV exceeds purchase price. Included in gross income in the first unrestricted taxable year

Question 4

What is the basis for depreciation for property converted into business use?

Answer 4

Lesser of FMV or AB on conversion date.

Question 5

How is the basis computed per asset for a lump sum purchase?

Answer 5

Basis = (FMV of asset/FMV of all purchased) x lump sum purchase price

Question 6

How is a donee’s basis in property acquired by gift determined?

Answer 6

Gift tax paid x [(FMV at time of gift - donor’s basis) / (FMV at time of gift - $13,000)]

Question 7

How is basis determined with inherited property?

Answer 7

FMV at date of death

Question 8

How is basis of stock determined that is acquired in a nontaxable distribution if new shares and old share ARE identical?

Answer 8

Old basis divided among new total of shares

Question 9

How is basis of stock determined that is acquired in a nontaxable distribution if new shares and old share ARE NOT identical?

Answer 9

basis is allocated in proportion to the FMV of the original stock and the distribution as of the date of distribution

Question 10

What is the basis of depreciation for property converted into business use?

Answer 10

lesser of the FMV of the property at the conversion date or the adjusted basis at conversion

Question 11

What types of property are not capital assets?

Answer 11

1. inventory
2. real or depreciable property used in t or b (limo)
3. A/R acquired in ordinary t or b
4. copyrights and artistic compositions
5. certain US govt pubs acquired reduced cost

Question 12

What is Net Capital Gain?

Answer 12

Excess of net LTCG (LT gain - LT loss) over STCL. Note: STCG is not included.

Question 13

What is capital gain net income?

Answer 13

Net of short and long term gains and losses

Question 14

If a long-term basket has a net loss, what does the loss offset first?

Answer 14

First net gain for the highest L/T basket, and then next highest and so on

Question 15

How is a L/T loss carryover used?

Answer 15

First used to offset any L/T gain in 28% basket, then 25% basket and so on

Question 16

How is a S/T loss carryover used?

Answer 16

First used to offset any L/T gain in 28% basket, then 25% basket and so on

Question 17

How does a corporation treat excess capital losses?

Answer 17

Must carry back 3 years and forward 5 years and characterize as STCL

Question 18

If property was bought 2/15/11, when is the first day of L/T treatment?

Answer 18

2/16/12

Question 19

How is a

1) business bad debt treated?
2) non-business bad debt treated?

Answer 19

1) ordinary loss

2) STCL

Question 20

How are capitalized amounts net yet amortized upon disposition treated?

Answer 20

Capital loss

Question 21

What is a wash sale?

Answer 21

When substantially the same securities are purchased within 30 days before of after being sold at a loss

Question 22

What happens to a wash sale disallowed loss?

Answer 22

add the loss to the basis of the repurchased stock

Question 23

How is the gain on sale treated for a market discount bond?

Answer 23

Ordinary income to the extent the market discount could have accrued as interest
Market Discount x (# days security held / # day from acquisition to maturity)

Question 24

How is Sec. 1244 small business stock treated?

Answer 24

Up to $50,000 single ($100,000 MFJ) of loss treated as ordinary loss

Question 25

To be classified a small business corp, what is the aggregate amount of money and property a corporation cannot exceed?

Answer 25

$1 million

Question 26

How is additional investment with additional shares of Sec. 1244 stock treated with any resulting losses?

Answer 26

Loss must be apportioned between the qualifying stock and non-qualifying additional capital interest

Question 27

How is small business stock exclusion treated under Sec. 1202?

Answer 27

May exclude 50% of gain from sale. Stock must have been issued after 8/10/93 and held more than 5 years. 75% stock after 2/17/09. 100% after 9/27/10

Question 28

Which dispositions do installment sales not apply?

Answer 28

1. inventory personal property sales
2. revolving credit personal property sales
3. Dealer dispositions
4. securities
5. sales on agreement to establish escrow

Question 29

What are the steps to figure installment gain income?

Answer 29

1. Gross profit = Sale - COGS
2. Gross profit % = Gross profit / sales price
3. Tax inc = Cash collected x gross profit %