INDIVIDUAL - GAINS & LOSES Flashcards

Question

How to determine the Disposition of a Normal Sale

Answer 1

Gain or loss is the difference between selling price and adjusted basis.

Answer 2

If they exchange properties, Stephen will have a $2,000 gain on the sale of his land to Ann.

Answer 3

Vladimir has a $5,000 gain on the sale of his machine because Vladimir received a total of $25,000 of consideration for the machine - $15,000 in cash and $10,000 in the form of the liability that has been assumed by Marina.

Answer 4

When some of the payment for the item is received in the tax year after the sale is made, the installment sale method may be used to calculate the amount of the gain recognized.

Answer 5

Gross Profit = Sales Price minus Adjusted Basis

Answer 6

Gross Profit Percentage = Gross profit divided by Sales Price.

Answer 7

Gain Recognized This Year = Gross Profit percentage multiplied by Payments Received during the year.

Answer 8

No. It can not be used for sale of property in the ordinary course of business. This is for a one-off sale, a side sale.

Answer 9

Under the installment method, not all of that gain will be recognized in the year of the sale. The gross profit percentage is 60% ($600,000 / $1,000,000) and the gain recognized in the year of sale will be 60% of the cash received. $200,000 was received during the year, so $120,000 will be recognized as taxable income this year.

Answer 10

1. Gifts and inheritances 2. Sale of a residence 3. Exchange of like-kind business or investment properties 4. Involuntary conversions

Answer 11

A nonrecognition transaction is a non-claimable gain or loss, according to the IRS. It applies as long as a reorganization occurs and property is exchanged solely for stock or securities. When assets are distributed in these scenarios, the gain or loss is a nonrecognition transaction and is not taxed.

Answer 12

Generally, neither the donor (giver of the gift) nor the testator (the deceased) will recognize gain/loss in this transaction.

Answer 13

If a single taxpayer sells a home they have occupied as their principal residence for at least 2 of the 5 years preceding the sale, they may exclude $250,000 of the gain on the sale of the residence from their income. Married taxpayers may exclude $500,000 in this situation.

Answer 14

If the properties in an exchange are like-kind real property and held either for 1. productive use in a trade or business, or 2. for investment, no gain or loss will be recognized on the transaction by either party.

Answer 15

If boot is received as part of like-kind exchange, some gain will recognized by the recipient of the boot. The Recognized Gain is the lesser of: 1. Realized gain, or 2. Amount of boot received. A loss is never realized in a like-kind exchange.

Answer 16

Boot is cash, other property, or the assumption of liabilities that belonged to the other party. Anything that is included other than the like-kind properties, is boot.

Answer 17

``` Basis of the old property exchanged + Basis of any boot given + Gain recognized − Fair market value of any boot received = Basis in the newly acquired property. ``` The basis of the boot received will be its fair market value.

Answer 18

Walter has a realized gain of $9,000 (the fair market value of the land received $11,000 + fair market value of stock received $2,000 – basis of his land $4,000). Since he received Boot, he must recognize gain. The gain is the lesser of the gain realized or the boot received. Since the boot was the lesser, Walter's recognized gain is $2000. Basis is found by Basis of the old property exchanged $4,000 + Basis of any boot given $0 + Gain recognized $2,000 − Fair market value of any boot received ($2,000) = Basis in the newly acquired property is $4000

Answer 19

John’s realized gain is $25,000. The recognized gain is limited to only $25,000 because the recognized gain may not exceed the realized gain. The new basis is calculated: Basis of the old property exchanged $100,000 + Basis of any boot given 0 + Gain recognized 25,000 − Fair market value of any boot received (35,000) = Basis in the newly acquired property

Answer 20

The general rule is that if the property which is involuntarily converted is replaced 1. With property of similar or related use 2. By the end of the second tax year after the tax year in which the gain is first realized, the taxpayer may elect not to recognize the gain on the disposal of the property.

Answer 21

Gain is recognized only to the extent that all of the proceeds are not used to buy qualified replacement property. Therefore, missing the replacement period (2 or 3 years) or not replacing with property of similar or related use property will make the involuntary conversion taxable.

Answer 22

Cost of the new replacement property − Any gain not recognized on the disposal = Basis of the Replacement Property (Gain is simply being deferred to future periods)

Answer 23

1. May exclude from taxable gain any insurance proceeds received for unscheduled personal property 2. Can elect for insurance proceeds for a home and/or its contents to be treated as one item. 3. Have a 4-year period in which to replace the assets. This 4-year period starts at the end of the tax year in which the gain is realized.

Answer 24

A personal casualty loss must be attributable to a disaster declared by the President. An exception applies to the extent a loss of an individual does not exceed the individual’s personal casualty gains.

Answer 25

Because not all of the money was reinvested in the replacement property, Dima must recognize $3,000 of gain for tax purposes. Dima’s basis in the new land will be $30,000. This is the $32,000 he paid for it minus the $2,000 of gain that was not taxed.

Answer 26

1. The character of the gain or loss 2. The amount of the gain or loss 3. The tax treatment of the gain or loss

Answer 27

The SALE of Capital Assets

Answer 28

1. Amount Realized - everything (money, services, etc) received by the seller for the property. 2. Realized Gain (or Loss) - the difference between the adjusted basis of the property and the amount realized in the transaction 3. Recognized Gain (or Loss) - The amount (gain or loss) that's recognized for tax purposes.

Answer 29

Capital Assets Classification: Capital assets include all investment property and property held for personal use (aka significant pieces of property such as homes, cars, investment properties, stocks, bonds, and even collectibles or art), EXCEPT for the following: 1. Inventory 2. Depreciable or real property used in a trade or business 3. Copyrights or artistic, literary, etc. compositions created by or for the taxpayer 4. Accounts or notes receivable from normal business activities 5. Supplies used in a business 6. U.S. Government publications acquired for free

Answer 30

All investment property. 1. Real estate 2. Stocks or bonds held as investment Property held for personal use. 1. Personal vehicles (cars) 2. Personal home and household furnishings 3. Electronics 4. Coin or stamp collections 5. Gems and jewelry

Answer 31

The holding period determines whether the item is a short-term or long-term capital gain or loss. More than one year is long-term holding. (366 days or more) Short-term capital gains are taxed like ordinary income.

Answer 32

All gains and losses are net together within short-term and long-term. If both are gains or losses, they are treated as their time period of holding. If they are different, they are net together and are treated as the time period of the larger amount.

Answer 33

Long-term capital gains are generally taxed at a maximum rate of 20%. Net Short-term capital gains are taxed at the ordinary tax rate.

Answer 34

Can deduct $3,000 of net capital loss per year ($1,500 if MFS), OR Taxable income before capital loss that year from their income. Individuals cannot carry capital losses back to prior years to obtain benefit, but can carry capital losses forward indefinitely to be utilized against future income.

Answer 35

Corporations do not receive a reduced tax rate for capital gains compared to ordinary income. Corporations can deduct capital losses only to the extent of capital gains. Corporations may carry a net capital loss back three years and forward five.

Answer 36

This is Section 1231 Property, which is land or depreciable property that is used in a trade or business held for more than 1 year. Not capital assets, but may give rise to gains or losses that are treated as capital gain or loss. If §1231 losses exceed the gains, then the net losses are treated as ordinary losses. If §1231 is a net capital gain, some of the capital gain may have to be recaptured (reclassified) as ordinary income.

Answer 37

§1245 Property is primarily depreciable personal property. All depreciation claimed prior to the sale, must be recaptured as ordinary gain when the item is sold. §1250 Property is depreciable real property. A 25% rate applies to the gain up to the amount of straight-line depreciation, any excess gain due to additional depreciation is recaptured as ordinary gain.

Answer 38

The company will have a capital gain that is equal to the amount of increase in the value of the asset while they held it. NOTE: Depreciation decreases the original basis, so the gain on the sale will be taxed as ordinary income.

Answer 39

The total realized gain is $410. The amount of depreciation that has been recognized will be treated as ordinary income ($310), and the remaining gain of $100 will be treated as a Section 1231 (capital) gain. This is the amount of the appreciation in the value of the property while held by the company.

Answer 40

In this case the total realized gain is $210 and the entire amount will be recaptured and treated as ordinary income (the entire amount of the gain is due to depreciation – there has been no appreciation in the value of the asset above its purchase price).

Answer 41

The gain or loss on the sale of a security is a taxable or tax deductible event.

Answer 42

1. Wash sales 2. Shares received in a stock dividend 3. Shares received in a stock splits 4. Worthless stock 5. Small business stock

Answer 43

Substantially the same stock is purchased within 30 days of the sale. Note: The loss from the wash sale is NOT tax deductible. When a loss is disallowed, the basis of the new stock is the same as the basis of the old stock.

Answer 44

Stock dividends received are NOT taxable. Note: If there was an option to receive a cash dividend or a shares dividend and the shares are selected, the shares will be taxable at their fair market value. However, because you own more shares, the basis in the shares is decreased.

Answer 45

Jones purchases 100 shares of ABC Corp. for $5,000 on January 1. The basis for each share is $50. On July 18, ABC Corp. announces a 20% stock dividend. As a result of the stock dividend, Jones will own 120 shares. The $5,000 purchase price needs to be allocated to all of the ABC shares. The basis for the 120 shares is now $41.67 for each of the 120 shares. On October 12, Jones sells 50 shares for $3,000. The gain for Jones is $917 (calculated as $3,000 - $2,083 basis).

Answer 46

The stock split itself is not taxable but it does lower the taxpayer’s basis in the shares that they previously held.

Answer 47

When stock becomes completely worthless the basis of the stock is deductible as a capital loss. NOTE: An exception is that if the stock is a small business investment company, known as §1244 stock; then the loss is an ordinary loss deductible in Form 4797-Sales of Business Property. This is applicable ONLY for the person who originally acquired the shares from the company that issued the shares.

Answer 48

Section 1202 allows a noncorporate taxpayer who holds small-business stock for at least 5 years to normally exclude at least 50% of the gain from the sale of the stock from taxable income. A higher exclusion is allowed for stock purchased After February 9, 2009. If stock was purchased between February 18, 2009 and September 26, 2010, the exclusion of gain from the sale is increased to 75%. The exclusion of gain from the sale is increased to 100% for stock acquired after September 27, 2010.

Answer 49

No. Amounts paid in escrow go toward future payments, so it is not added to basis.

Answer 50

$28,889 $10,000 x [($60,000-$20,000) / ($60,000-$15,000)] = $8,889 net increase in value of gift. Gift tax paid x [FMV at time of gift - donor's basis) / (amount of gift - 2019 annual exclusion)] NOTE: only a PORTION of the gift tax is added to basis. Note: you don't need to do this calculation on the test. Just know the rule is that a portion of the gift tax is added and then pick the best answer of the multiple choices.

Answer 51

False. Only a portion of the Gift Tax is able to be added.

Answer 52

$30,000 Basis for Gain: $32,000 Basis for Loss: $30,000

Answer 53

$0 Gain - use donor's basis $9,000 sale -$10,000 basis = ($1,000) loss Loss - use FMV on the date of gift $9,000 sale - $8,000 FMV = $1,000 gain IF a loss creates a gain, AND a gain creates a loss, then you have neither, and call it $0.00

Answer 54

1. Condemned 2. Destroyed 3. Theft 4. Imminent Domain The Basis of replacement property is based on the converted property.

Answer 55

1. $20,000 - not spent on replacement property 2. $600,000 - same as condemned property. The basis is the same as the condemned building because it preserves the gain Amy had before the condemnation, and allows recognizing the gain to be deferred.

Answer 56

2:1 (2 for 1) - Doubles your total. | Applied to each tax lot.

Answer 57

Two shares at $45/share and two shares at $55/share ``` $90/2 = $45 $110/2 = $55 ```

Answer 58

Paid in installments over time. Interest Return of Basis Gain Found by the Gross Profit Percentage. (Q&A Not complete)

Answer 59

Selling Price - Adjusted Basis = Gross Profit $100,000-$40,000=$60,000

Answer 60

Gross Profit / Sales Price = Gross Profit Percentage $60,000 / $100,000 = 60% GPP

Answer 61

Gross Profit - Recognized gain - Repossession Costs = Limitation.

Answer 62

Questions needed!

Answer 63

Everything received for the property. (money, FMV of property or services, and debt or other liabilities assumed by buyer)

Answer 64

The Difference between adjusted basis and the amount realized in a sale

Answer 65

Amount included in taxable income for the tax year.

Answer 66

1. ($4,000) short term capital loss - $25,000 STCG - $36,000 STCL = ($11,000) STCL - $22,000 LTCG - $15,000 LTCL = $7,000 LTCG - ($11,000) + $7,000 = ($4,000) STCL 2. $3,000 deductible against ordinary income; $1,000 carryforward.

Answer 67

Amount Realized from sale is $136,000 ($100,000+$20,000+$3,000+$17,000-$4,000) Adjusted basis of property is $80,000 ($70,000+$20,000-$10,000) Recognized Gain is $56,000 ($136,000-$80,000)

Answer 68

$16,000 total received - $6,400 already recognized = $9,600 Gain Limitation to $11,000 which is the $20,000 gross profit - $6,400 recognized - $2,500 repossession costs

Answer 69

$5,000 Capital Gain 60% Gross Profit Percentage ($60,000 / $100,000) ``` $10,000X60% = $6,000 profit; $4,000 basis $9,000-$4,000 = $5,000 ```

Answer 70

If the FMV is equal to or greater than the donor's adjusted basis, then the Basis is the same as the Donor's adjusted basis (plus any gift tax paid). If the FMV is less than the Donor's adjusted basis, if a Gain, then basis is the same as the Donor's adjusted basis. If a Loss, then the basis is the FMV when the taxpayer received the gift.

Answer 71

$102,000 $100,000 + $1,000 (taxes Ruth owed) + $1,000 (closing costs)