R2 M2- Gains & Losses

Question 1

What is a capital Asset?

Answer 1

Includes property held by the taxpayer for investment or personal use.

Question 2

Which of the following are capital assets?

I. Interest in a partnership
II. Accounts receivable
III. Stocks and bonds
IV. Inventory

A.	I, III, and IV
B.	Both I and III
C.	II only
D.	I, II, and III

Answer 2

Choice “B” is correct. A capital asset includes property (real and personal) held by the taxpayer for investment or for personal use.

Choices “A”, “C”, and “D” are incorrect because they include either accounts receivable or inventory, which are not capital assets.

Question 3

The sale or disposition of property (gain or loss) can be a capital gain or loss or be an ordinary income or loss depending on what the property was used for.

An example of a capital asset is:

• Investment (sale stock, bond, virtual currency)
• Personal use (home, furniture, property, personal car)

Disposition of capital asset are taxed as capital gain/loss different from ordinary income unless it’s a short-term capital asset.

Non-capital asset can be:
- Sales to customer
- Inventory
- Account receivable
- Property disposal for trade or business (real property or personal property)

Question 4

Sands purchased 100 shares of Eastern Corp. stock for $18,000 on April 1 of the prior year. On February 1 of the current year, Sands sold 50 shares of Eastern for $7,000. Fifteen days later, Sands purchased 25 shares of Eastern for $3,750. What is the amount of Sand’s recognized gain or loss?

A.	$500

B.	$0

C.	$1,000

D.	$2,000

Answer 4

Rule: A loss on a wash sale is disallowed for tax purposes. A wash sale exists when a security is sold for a loss and is repurchased within 30 days before or after the sale.