Exam Review #1

Question 1

Tantum exchanged farmland for an office building. What is Tantum’s recognized gain.

Answer 1

FMV office building $350,000
Liabilities relieved 120,000
Amount realized $470,000
Less: AB farmland (250,000)
Less: Liabilities assumed (70,000)
Gain realized $150,000

$120,000 Liability Relief - 70,000 Liabilities assumed = $50,000 gain

Question 2

Gem purchased $50,000 of goodwill and a $13,000 covenant not to compete. for tax purposes what amount of these intangibles should be amortized

Answer 2

$63,000

The cost of certain intangibles acquired (not created) in connection with the conduct of a trade or business or income-producing activity is amortized over a 15-year period

Question 3

How is the depreciation deduction of nonresidential real property, placed in service in 2014 determined for regular tax purpose

Answer 3

Straight-line method over 39 years

Question 4

What amount of capital can an individual deduct in arriving at the adjusted gross income

Answer 4

$3,000 of capital losses can be deducted from ordinary income each year

Question 5

An individual tax payer who has elected to amortize the premium on a bond yielding taxable interest income. Increases or decreases the basis in the bond

Answer 5

If the premium in the bond is amortized the basis of the bond must be reduced by the amount of premium that is amortized.

Question 6

Stocks that are inherited at

Answer 6

FMV

Question 7

Self-employed person sells office furniture purchased 4 years ago for $30,000 for 37,000. The depreciation taken was $20,700. What part of the gain is taxed as Long-term capital gain.

Answer 7

Sec. 1245 property is depreciable personal property (e.g., office furniture). Gain on the disposition of Sec. 1245 property is ordinary income to the extent of the lesser of all depreciation taken or gain realized. The realized gain in excess of the depreciation taken may be treated as a gain from the sale or exchange of Sec. 1231 property (i.e., capital gain). The realized gain of $27,700 is greater than the depreciation taken ($20,700) by $7,000. Because the holding period is greater than one year, the gain is long-term.

Question 8

Capitalized acquisition costs is equal to

Answer 8

Cost Basis

1. Purchase price
2. Major improvements
3. Closing costs
4. Other misc. costs

Question 9

When more than one asset is purchased for a lump sum, the basis of each is computed by

Answer 9

apportioning the total cost based on the relative FMV of each asset

Question 10

Basis in inherited property is the

Answer 10

FMV on the date of death or 6 months after if the executor elects the alternate valuation date for the estate tax return

Question 11

The basis of stock acquired in a nontaxable distribution is allocated

Answer 11

a portion of the basis of the stock upon which the distribution was made.
If the FMV of the stock rights is less than 15% of the FMV of the stock upon which it was issued, the rights have a zero basis (unless an election is made to allocate basis).

Question 12

ADS alternative depreciation system is required for which listed property

Answer 12

1. Listed property;
2. Property used, leased, or financed by tax-exempt organizations;
3. Tangible property used predominantly outside the U.S.; and
4. Imported property from a country that engages in discriminatory trade practices.

Question 13

Acquisition costs of leases are amortized over what period

Answer 13

over the term of the lease

Question 14

Capital Assets

Answer 14

All property is characterized as a capital asset, unless expressly excluded

Question 15

An individual may carry forward any excess capital losses

Answer 15

indefinitely

Question 16

The disposition or worthlessness of Section 1244 stock is treated as

Answer 16

Ordinary loss

1. Single $50,000 loss
2. MFL $100,000

Question 17

Gain on disposition of Section 1245 property is

Answer 17

Ordinary income to the extent of the lesser of all depreciation taken or gain realized

Question 18

Neither Section 1245 nor Section 1250 applies to

Answer 18

Gifts, bequest, devise, or intestate succession disposition

Question 19

Apartment building sold for $210,000 with a cost of $200,000 and accumulated depreciation of $160,000. What should the person report on his 2014 tax return

Answer 19

Section 1231 gain of $210,000 - $160,000 =$50,000

Question 20

As the property is depreciable, personal, trade or business property, it is subject to section 1245 recapture rules which provide that any gain realized, to the extent of the lesser of gain realized or depreciation taken. The gain is characterized as

Answer 20

Ordinary Income. Since the depreciation exceeds the realized gain, the entire gain is characterized as ordinary income.

Question 21

A dad sells stock of $10,000 to his son that he for 7,000. He son sells the stock for 6,000 to an unrelated party, what will the son report on his tax return for this sale

Answer 21

A short term capital loss of 1,000, because losses are not allowed between related party transaction

Question 22

Capital assets are

Answer 22

Property held by the taxpayer not used in a trade or business or depreciable business property

Question 23

Section 1245 gain is reported as

Answer 23

Ordinary Income
Sales Price         $200,000
Adjusted bases
Cost   $160,000
Depr.   (60,000)
Adjusted basis  ($100,000)
Amount Realized 
              $100,000
Dep 1245 60,000

Question 24

The cost of intangibles acquired in connection with the conduct of a trade or business or income-producing activity is

Answer 24

amortized over a 15 year period

Question 25

Basis in corporations stock after stock dividends

Answer 25

The allocation of basis in the stock is made based on the relative fair market values on the date of distribution for each of the two different blocks of stock, rather than by averaging them.

Question 26

Basis in a property by gift with gift tax

Answer 26

FMV - AD / FMV-Exemption multiplied by the gift tax

Question 27

Taxation of capital Gains

Answer 27

15/20% Basket for taxpayers

25% Basket
Section 1250 un-recaptured depreciation from real property held for more that 12 months

28% Basket
Sale of collectible
Sec. 1202 stock gains

Question 28

Section 1231 property is

Answer 28

Capital assets in connection with a trade or business held for more than 1 year and include

1. Real property
2. Depreciable property
3. involuntary converted capital assets

Question 29

If a security becomes worthless in the current taxable year, it is treated as sold or exchanged on

Answer 29

The last day of the current taxable year

Question 30

ADS must NOT be used for

Answer 30

Tangible property leased to a person owned or used the property in 2015

MACRS provides two systems for depreciating property placed in service after 1986: the general depreciation system (GDS) and the alternative depreciation system. Although GDS is used for most property, ADS is required by law for any tangible property used predominantly outside the United States, any tax-exempt use property, and any tax-exempt bond-financed property.

Question 31

How long can a Capital loss carryovers be for individuals and estates

Answer 31

unlimited for individuals but no carryovers are allowed for a decedent estate

Question 32

The excess return on capital from a distribution is treated as a

Answer 32

capital gain