Gains and Losses

Question 1

Worthless securities

Answer 1

treated like they were sold on last day of year

Question 2

Kinds of Bad Debt

Answer 2

Business & Non-Business

Question 3

Business bad debt is deductible as

Answer 3

business expense

Question 4

Non-business bad debt is deductible as

Answer 4

short term capital losses

Question 5

Debt must be

Answer 5

intentional
intention to make it a loan not a gift - can’t make it a gift
must have basis

Question 6

Debt can be taken when

Answer 6

in year it becomes worthless

Question 7

Sale of property

Answer 7

selling price - selling expense

Question 8

taxpayer may not deduct a loss on sell of homestead but…

Answer 8

must file a schedule d even though you can’t take a deduction

may not deduct a loss on a home

Question 9

Involuntary Conversion

Answer 9

condemn or destroyed property

Question 10

Installment sale

Answer 10

part of the sale price to be paid at a later time

Question 11

Installment method

Answer 11

seller reports gain gain under installment method
seller can report gain in the current year

can not use installment for a loss

Question 12

property sold to replated person

Answer 12

cant use the installment method

Question 13

installment rules for calculating gain or loss

Answer 13

1. sells property less the FMV - Gain or loss is the difference between the basis in the obligation and the amount realized
2. any other way it is BASIS OF OBLIGATION - FMV

Question 14

Partnership A: loss of $2,000
Partnership B: profit of $3,300
Partnership C: loss of $4,100

no other passive income

what amt can be deduct as a loss on individual income tax return

Answer 14

Loss: -2800
Passive activity losses - not deductible on an individual income tax return.
Carried over and used to offset passive income in the future until used up.

so -2800 will be carried over

Question 15

Julia sold her stock in ABC Company to her sister Hannah for $30,000.
Julia’s tax basis i$33,000.
Hannah sold the stock to an unrelated third party for $32,000 in cash.

What is the income tax effect of Hannah’s sale?

Answer 15

The first transaction results in a disallowed loss of $3,000 ($30,000 less $33,000) investment was sold to a related party.

The second transaction was to an unrelated party and results in a gain of $2,000 ($32,000 less $30,000).

The disallowed loss of $3,000 can then be used to reduce this gain for tax purposes to zero. However, a disallowed loss of this type cannot be used to create a taxable loss. Therefore, although the loss of $3,000 is greater than the eventual gain of $2,000, it can only reduce the gain to zero. That is its limit.

Question 16

if a business asset is sold but the seller agrees to finance the sale over five years, the seller must?

Answer 16

Record any depreciation recapture income in the year of sale

DO NOT file Form 6252 for sales that are not a gain

Question 17

John Jacob sold shares to his daughter Emily for $7,000
The original cost had been $11,000 to Jacob

Emily held the shares until September 1 when she started college and sold them to an outside party for $8,300 to help pay for tuition.
What does each party report on their separate federal income tax returns?

Answer 17

Related sale of property
1. loss has to impact in income tax
2. Sold shares to non-related person
Gain for Sara - 7,000-8300=1300
Loss for Dad - 11,000-7,000=4,000

3. 4,000 used to reduce gain of 1300.
4. remain 2700 loss is lost - not deductable

so no effect on dad or emily’s income taxes - no loss/no gain reported

Question 18

Qualifying debt is classified

Answer 18

as short term capital loss

Question 19

The related persons rule regarding asset sales applies to transactions between _________?

Answer 19

The grantor and a fiduciary of a trust

does not include in-laws

Question 20

Tom Metty sold property to his son in a transaction that was viewed as a related party transactions for income tax purposes. Which of the following is true regarding related party transactions?

Answer 20

Gains from related party transactions are taxed, but losses are not deductible.

Question 21

Taxable gain using the installment sales method, the seller starts by computing?

Answer 21

1. gross profit percentage
   profit on sale/sales price
2. percentage X amount of cash received for that year.

Question 22

Non-business bad debts are reported as

Answer 22

short term capital losses on Form 8949 in the year the debt becomes worthless.

Does not matter how long the debt has been outstanding.

Question 23

In-Kind Exchanges

Answer 23

both the property given up and the property received must be held by the taxpayer for investment or for productive use in a trade or business.

Question 24

An individual taxpayer has capital gain distributions only and no other capital gains. Which of the following satisfies the reporting requirements?

Answer 24

No Schedule D is required
the amount is entered directly on page 1 of Form 1040.

Question 25

Individuals and other noncorporate taxpayers may deduct up to __________of a capital loss against ordinary income.

Any excess capital loss may be …

Answer 25

$3,000

carried over for an unlimited time period until the loss is exhausted.

no carryover from a decedent to his or her estate.

Question 26

in January of Year 1, Kirk Kelly bought 100 shares of a listed stock for $8,000. In March of Year 2 when the fair market value was $6,000, Kirk gave this stock to his cousin Clara. No gift tax was paid. Clara sold this stock in June of Year 3 for $7,000. How much is Clara’s reportable gain or loss in Year 3 on the sale of this stock?

Answer 26

The basis of property received by gift is the donor’s basis (transferred or carryover basis).

If the FMV of the property at the time of the gift is lower, however, the basis for purposes of determining loss is the fair market value (Sec. 1015).

Clara’s basis for gain is $8,000, and her basis for loss is $6,000. Therefore, neither gain nor loss is recognized

Question 27

if a taxpayer has capital gains dividends but has no other capital gain,

Answer 27

No Schedule D is required, and the amount is put directly on Form 1040.

Question 28

CAPITAL ASSET results in

Answer 28

capital gain/loss

Question 29

sale/trade of non capital asset results

Answer 29

in ordinary gain/loss

Question 30

Form 8949

Answer 30

list all capital gains/loss transaction

carried over to Schedule D where gain/loss will be calculated

Short-term gains are listed together on Schedule 1

Long -term gains listed on Schedule 2

Question 30

If capital losses are more than capital gains

Answer 30

Allowable capital loss deduction is lesser of the two
1. 3000 MFS or 1500 MFS
2. taxpayer’s total net loss shown on Schedule D

may use total net loss up to 3000.
unused amount is carried over to next year

Question 30

S has long term and short term losses
Short term - 5,000
Long term - 10,000

how to deduction and what order

Answer 30

short term loss used first
1. Deduct 5,000 in current yr
2. carryover 10,000 to next year

Question 31

Passive Losses

Answer 31

no material participation occurs
not deductible unless taxpayer has income from other passive activities to offset them

Question 32

bought boat for 100000
Sold boat for 50,0000
boat was for pleasure

Answer 32

Can not deduct personal items because it is a loss

if capital gain - report

Question 33

the basis for property received for services is its fair market value.

However, the basis used by an employee who received property from an employer at less than its fair market value is

Answer 33

the purchase price plus the amount included in the employee’s income.

The amount included in the employee’s income is the difference between the fair market value and the price paid.

Thus, even in such a case, the basis is the property’s fair market value.