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Test your recall > ITX - 38 > Flashcards

ITX - 38 Flashcards

1
Q

(38.2) Capital assets are all of a taxpayer’s assets, except:

A
  • inventory or property
  • depreciable property
  • real estate
  • accounts or notes receivable
  • supplies
  • copyright, composition, or artwork, if held by the creator
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2
Q

(38.2) Holding period: long-term asset if held for?

A

more than 12 months.

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3
Q

(38.2) Holding period: short-term asset if held for?

A

12 months or less

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4
Q

(38.2) Holding period for assets purchased?

A

The day after purchase and includes the day of disposition

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5
Q

(38.2) Holding period for property, partnership interests, or stock acquired through an exchange: the basis in the acquired property is determined by reference to ___ (as in a like-kind exchange); then, the holding period of the asset received includes the holding period of ___.

A

the property given up

the property given up

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6
Q

(38.2) Holding period of a gift: The ___ holding period includes the time the ___ held the property, but does not include the time that the property was held by the ___ if the property was sold at a ___ and the FMV was less than the ___ adjusted basis at the time of the gift.

A 
donee's
donor
donor
loss
donor's
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7
Q

(38.2) Holding period of a bequest: Always considered by the recipient for ___, unless it is purchased by the estate for distribution to the recipient.

A

more than a year

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8
Q

(38.2) Total tax on long-term capital gains rate for taxpayers in the 39.6% tax brackets.

A

23.8% (20% + 3.8% Medicare Contribution tax on unearned income)

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9
Q

(38.2) Total tax on long-term capital gains rate for taxpayers in the 33% and 35% tax brackets.

A

18.8% (15% + 3.8% Medicare Contribution tax on unearned income)

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10
Q

(38.2) Total tax on long-term capital gains rate for taxpayers in the 25% and 28% tax brackets.

A

15%

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11
Q

(38.2) Total tax on long-term capital gains rate for taxpayers in the 10% and 15% tax brackets.

A

0%

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12
Q

(38.3) Capital gains recognized when assets are held for 12 months or less are taxed as ___.

A

ordinary income

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13
Q

(38.3) Losses from sale of capital assets: Only $___ per year of net capital losses can be used to reduce ordinary income.

A

$3,000

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14
Q

(38.3) The ___ on municipal bonds are subject to tax, even though the ___is free of federal income tax.

A

capital gains

interest income

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15
Q

(38.3) Short-term capital losses can offset ___, long-term capital losses can offset ___, and net-short term capital gains can offset ___.

A

short-term capital gains (or losses)
long-term capital gains (or losses)
net long-term capital gains (or losses)

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16
Q

(38.4) Capital gains rate for collectibles

A

28%

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17
Q

(38.4) Capital gains rate for unrecaptured Section 1250 gain (real estate)

A

25%

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18
Q

(38.4) To qualify, the taxpayer must have owned and occupied the home as a principal residence in __ years before the sale. The exclusion may only be used every ___ years.

A

two out of the last five

two

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19
Q

(38.4) If the taxpayer acquired the home in a like-kind exchange, the taxpayer must have owned the home for __ years to qualify for an exclusion.

A

five

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20
Q

(38.4) If the client lived in the home for less than two years due to unforeseen circumstances, the maximum exclusion is multiplied by ___ divided by ___.

A

the number of months lived in the home

24

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21
Q

(38.5) Widowed spouses are able to claim the $500,000 exclusion when they sell their principal residence provided the home is sold within ___ years of the deceased spouse’ death.

A

two

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22
Q

(38.6) The maximum amount of time allowed to be away from the home and still qualify as qualified use is ___ years for the change of employment, health condition or other unforeseen situations.

A

two

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23
Q

(38.6) The unearned income medicare contribution tax: The tax applies to investment income from?

A
  • dividends
  • interest
  • annuities
  • royalties
  • rents
  • gains from disposition of property
  • income from passive activities
  • gain in excess of Sec. 121 exclusion ($500,000 MFJ, $250,000 single)
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24
Q

(38.7) A taxpayer cannot create a __ with a home office deduction. Home office expenses can only offset ___.

A

loss

net income

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25
Q

(38.7) Deduction for home office expenses: If depreciation is taken as an expense for a home office, the depreciation is subject to ___ at the time of the sale of the residence. The gain is ___ gain and is subject to a maximum tax rate of ___%.

A

recapture
unrecaptured Section 1250 gain
25%

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26
Q

(38.7) Deduction for home office expenses: Deduction is determined by multiplying the allowable square footage (not to exceed ___ square feet) by $___. The maximum a taxpayer can deduct annually under the safe harbor is $___.

A

300 square feet
$5
$1,500

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27
Q

(38.8) Assets used in a trade or business: Section 1231 applies if assets have been held for ___.

A

more than 1 year

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28
Q

(38.8) Assets used in a trade or business: If a Section ___ loss is deducted, and a Section ___ gain is realized in any of the subsequent __ years, then subsequent gains are treated as ___ income, to the extent of the loss.

A

1231
1231
5 years
ordinary

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29
Q

(38.8) Depreciation recapture: All assets subject to depreciation recapture provisions of Sections ___.

A

1245 & 1250

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30
Q

(38.8) Depreciation recapture: Section ___ covers personal property

A

1245

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31
Q

(38.8) Depreciation recapture: Section ___ governs real property sales

A

1250

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32
Q

(38.8) Depreciation recapture: Section 1245 covers ___.

A

personal property

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33
Q

(38.8) Depreciation recapture: Section 1250 governs ___.

A

real property sales

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34
Q

(38.8) Depreciation recapture: For Section 1245 property that has depreciated, the gain is separated into two parts:

A
  • The depreciation deduction that reduced basis

- The remaining gain

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35
Q

(38.8) Depreciation recapture: The gain attributable to depreciation deduction is taxed as ___ income and is called ___. Any remaining gain is a ___ gain, as stated in Section ___.

A

ordinary
depreciation recapture
capital gain
Section 1231

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36
Q

(38.9) Section 1245 Property Recapture: The recapture look-back only applies to ___ property (tangible property that is not ___).

A

1245

real estate

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37
Q

(38.9) Section 1245 Property Recapture: If the property is sold for a gain, the amount of cost recovery deduction taken will be taxed as ___. Any gain in excess of the cost-recovery deduction is ___ gain (taxed at capital gains rate).

A

ordinary income

1231 gain

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38
Q

(38.9) Section 1245 Property Recapture: 1231 gain (capital gain) = The gain is realized as calculated by ___.

A

the difference between the purchase price and the selling price

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39
Q

(38.9) Section 1245 Property Recapture: 1245 gain (ordinary income) = If the ___ gain is realized, then the cost-recovery deduction (depreciation) is taxed at ordinary income rates

A

1231

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40
Q

(38.9) Section ___ and ___ are treated as depreciation deductions for depreciation recapture purposes

A

Section 179 and the bonus depreciation

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41
Q

(38.9) Section 1250 Recapture: The amount of real property depreciation to be recaptured is ___.

A

the difference between the actual depreciation deductions taken and the amount figured using the straight-line method

42
Q

(38.9) Section 1250 Recapture: Because ___ uses straight-line depreciation for all real estate, depreciation recapture does not apply to any real estate depreciated under ___.

A

MACRS

MACRS

43
Q

(38.10) Section 1250 Recapture: Any gain on the sale of real estate, up to the amount of any depreciation taken, is taxed at a ___% maximum rate, rather than the ___% rate. Additional gain is subject to the lower rate.

A

25%

15%

44
Q

(38.10) Section 1250 Recapture: Depreciation recapture may be triggered by ___ sales.

A

installment

45
Q

(38.10) Section 1250 Recapture: All recapture amounts are taxable upon ___.

A

sale

46
Q

(38.10) This rule applies to any sale where the taxpayer acquires substantially identical securities during the 30 days before or 30 days after the sale.

A

wash sales

47
Q

(38.11) Bargain sales: Three situations in where a bargain sale might occur: 1) A ___ might make a sale of an asset at a substantially reduced price to a ___; 2) A ___ might sell an asset at a bargain price to a ___ organization; 3) A sale to an ____.

A
  • corporation or employer
  • shareholder or employee
  • donor
  • charitable
  • individual
48
Q

(38.11) Stock qualifies for special treatment under Section ___ if it is a stock in a domestic corporation and is issued for money or other property (not securities or services). The corporation must not have received more than $___ total in exchange for its stock and must receive ___% of its receipts from business operations.

A

Section 1244
$1 million
50%

49
Q

(38.12) Owners of Section 1244 stock can deduct up to $___($___ if MFJ) per year in losses on the sale of Section 1233 stock against ___ income.

A

$50,000
$100,000
ordinary

50
Q

(38.12) Sales with payments made over periods exceeding one year.

A

Installment sales

51
Q

(38.12) Installment sales income calculation

A

Sale price - transaction costs - AB of the assets = Tentative gross profit

Tentative gross profit/contract price = gross profit %

Gross profit % x Total payments received (excluding interest) = Profit recognized in AGI

52
Q

(38.13) The ___ method cannot be used with sales that result in a loss.

A

installment-sale method

53
Q

(38.13) When an asset that is subject to depreciation recapture (tangible personal property) is sold using an installment contract, the amount of ___ recaptured is included in income in the year of ___, and only the ___ gain is reported using the installment method.

A

ordinary income
sale
additional capital gain

54
Q

(38.13) When real estate has been depreciated and is sold in an installment sale, the gain may consist, in part, of ___, taxed at a maximum rate of 25%, and the remaining gain will be ___, taxed at a maximum of 15% (20% for high-income taxpayers. When both kinds of gain will be realized, the taxpayer reports the ___.

A
  • unrecaptured Sec. 1250 gain
  • capital gain
  • 25% gain before any capital gain is taken
55
Q

(38.14) If the buyer assumes the seller’s mortgage in an installment sale: The total contract price is ___. If the mortgage assumed is greater than the seller’s basis, then only ___ is deducted from the sale price to calculate the contract price.

A
  • the sale price less the amount of the assume mortgage

- the amount of the seller’s basis

56
Q

(38.15) Involuntary conversion: Typically, taxpayers have until __ years after the end of the tax year in which the conversion occurred to obtain the replacement property.

A

two

57
Q

(38.15) Involuntary conversion: Business property - have until __ years after the end of the tax year in which the conversion occurred to obtain the replacement property.

A

three

58
Q

(38.15) Involuntary conversion: Principal residence in a declared disaster area - have until __ years after the end of the tax year in which the conversion occurred to obtain the replacement property.

A

four

59
Q

(38.15) Involuntary conversion: In order to postpone the entire gain, the taxpayer must use ___ of the net proceeds to ___.

A
  • all

- purchase or build the replacement property

60
Q

(38.15) Losses from abandonment of business or investment property that is not treated as a sale or exchange is generally treated as an __ loss.

A

ordinary

61
Q

(38.15) Abandoned Property: The taxpayer is personally liable for the debt

A

recourse debt

62
Q

(38.15) Abandoned Property: The taxpayer is not personally reliable for the debt

A

nonrecourse debt

63
Q

(38.15) Abandoned Property: If the abandoned property secures recourse debt and the debt is cancelled, the taxpayer will realize ___ income equal to the cancelled debt, unless the cancellation is intended as a gift or the debt is ___.

A
  • ordinary

- qualified principal residence debt

64
Q

(38.15) Abandoned Property: If the abandoned property secures recourse debt, the taxpayer does not recognize gain or loss until ___.

A

the foreclosure is completed

65
Q

(38.15) Abandoned Property: If the abandoned property is ___ property, no loss deduction is available.

A

personal use

66
Q

(38.15) Abandoned Property: If the abandoned property is personal use property, no ___ is available.

A

loss deduction

67
Q

(38.15) Abandoned Property: Abandonment of business or investment property securing nonrecourse debt is treated as ___. A gain will be realized to the extent that the debt exceeds ___.

A
  • a sale or exchange of the property

- the taxpayer’s AB in the property

68
Q

(38.16) Like-kind exchange: Form ___ is filed for the year of the exchange and for two years after exchanges between ___.

A

Form 8824

two

69
Q

(38.16) Like-kind exchange: The deferral of gain is not available on?

A
  • any property held for sale (inventory)
  • partnership interests
  • property solely for personal use
  • stocks , bonds, and other securities (unless it is stock of a qualified small business - Section 1244 stock)
70
Q

(38.16) Like-kind exchange: The property must be held for ?

A

use in a trade or business or for investment

71
Q

(38.16) Like-kind exchange: For intangible personal property, which does not qualify for like-kind exchange?

A

goodwill

72
Q

(38.17) Like-kind exchange: Improved real estate may be exchanged for ___. Commercial real estate may be exchanged for __. An ownership interest can even be exchanged for a lease interest greater than __ years.

A
  • unimproved real estate
  • residential real estate
  • 30 years
73
Q

(38.17) Like-kind exchange: To qualify for like-kind treatment, the seller cannot constructively receive___ and then use it to buy another property; rather, it must be placed in a ___ until it is used to acquire replacement property.

A
  • cash

- qualified escrow account or trust or with a qualified intermediary

74
Q

(38.17) Like-kind exchange: The client has __ days to identify in writing up to __ potential replacement properties, and ___ days to actually receive the replacement property.

A
  • 45
  • 3
  • 180
75
Q

(38.18) Like-kind exchange: No loss or gain is recognized for Section ___ like-kind exchanges

A

Sec. 1031

76
Q

(38.18) Like-kind exchange: The property exchanged must be held either for ___ purposes.

A

investment trade or business purposes

77
Q

(38.18) Like-kind exchange: Non-qualifying property includes?

A
  • stocks
  • bonds
  • business inventory
  • personal residences
78
Q

(38.18) Taxpayer A may trade a business or investment property for a property not used by Taxpayer B for business or investment. If Taxpayer A will use the property received for the same business, the exchange qualifies as like-kind for ___.

A

Taxpayer A only

79
Q

(38.18) Multiple properties: The realized gain is the ___ of the assets given up less the total basis of those assets.

A

FMV

80
Q

(38.18) Multiple properties: The realized gain is recognized to the extent of any ___ (the amount by which the FMV of the assets given up is greater than the FMV of the assets received.

A

exchange group deficiency

81
Q

(38.18) Multiple properties: ___ and other noneligible assets become part of the ___ group, where all the realized gain is recognized.

A
  • money

- residual

82
Q

(38.18) When a taxpayer gives up property that is subject to a liability and the liability is assumed by the transferee, then the taxpayer is treated as having received ___ in the transaction equal to the amount of liability being transferred.

A

cash

83
Q

(38.19) The cash or unlike property received is referred to as ___.

A

boot

84
Q

(38.19) What is referred to as boot?

A

cash or unlike property

85
Q

(38.19) Basis in the new property received in a deferred exchange is?

A

the basis in the old property + (+boot paid or -boot received) + the gain recognized

86
Q

(38.20) Boot is cash or any other property that does not qualify as ___, including any reduction in ___.

A
  • like-kind

- mortgage debt

87
Q

(38.20) When analyzing a boot question, always determine?

A
  • the FMV of the property received
  • the AB of the property
  • any non-like-kind property received
88
Q

(38.20) If the boot received is less than ___ gain, then the total boot received represents the recipient’s total ___ gain.

A

realized

recognized

89
Q

(38.20) If no boot is received, there is no ___ gain.

A

recognized

90
Q

(38.20) When either property received by the related parties is disposed of in less than __ years from the date of the exchange, the like-kind exchange treatment is disallowed. This disqualification does not apply in the event of?

A
  • two

- the death of either party or as a result of an involuntary conversion

91
Q

(38.20) Like-kind exchange: A ___ is a related entity when the client owns (directly or indirectly) more than ___% of the stock or interest

A
  • corporation or partnership

- 50%

92
Q

(38.22) Long-term contract calculation for current year’s income

A

Total projected revenue - Total projected costs = Estimated gross profit

Estimated gross profit x (cost incurred during the current year/total projected costs to be incurred on the project) = Current year’s income

93
Q

(38.23) Effect of LIFO when prices are rising: Inventory value

A

low

94
Q

(38.23) Effect of LIFO when prices are rising: Cost of goods sold

A

high

95
Q

(38.23) Effect of LIFO when prices are rising: Taxable income

A

low

96
Q

(38.23) Effect of LIFO when prices are rising: Earnings per share

A

low

97
Q

(38.23) Effect of FIFO when prices are rising: Inventory value

A

high

98
Q

(38.23) Effect of FIFO when prices are rising: Cost of goods sold

A

low

99
Q

(38.23) Effect of FIFO when prices are rising: Taxable income

A

high

100
Q

(38.23) Effect of FIFO when prices are rising: Earnings per share

A

high

Test your recall (38 decks)

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