REG: Other Nonrecognition Transactions Flashcards
An individual with gross income of $78,000 had the following gains and losses from capital transactions during the current year:
Loss of $11,000 on the sale of principal residence held for five years
Gain of $5,000 from the sale of securities held for four years
Loss of $9,000 on the sale of municipal bonds held for seven months
Loss of $4,000 on the sale of a painting held for investment for fifteen years
What amount of the capital loss should the individual carry forward?
$5,000
$8,000
$16,000
$19,000
$5,000
Losses from the sale of personal use assets are not deductible, so the $11,000 loss is not recognized. The $9,000 loss on the municipal bonds is a short-term capital loss, and the $4,000 loss on the painting is a long-term capital loss. The $5,000 long-term capital gain is reduced to zero by the $4,000 long-term capital loss and $1,000 of the short-term capital loss. Of the remaining $8,000 capital loss, $3,000 is deductible in the current year, and the remaining $5,000 is carried forward.
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 Sands’s recognized gain or loss?
$0
$500 loss
$1,000 loss
$2,000 loss
$1,000 Loss
Sand’s basis per share is $180 ($18,000/100 shares). Sand’s realized loss on the 50 shares sold is $2,000 ($7,000 amount realized – $9,000 basis ($180 × 50 shares). This loss is not recognized under the wash sale rule if the same stock is repurchased within 30 days. Since only 25 shares were repurchased during the 30 day period, 50% (25 shares/50 shares) of the loss is not recognized. Therefore, $1,000 of the realized loss is recognized.
In the current year, Essex sold land with a basis of $80,000 to Yarrow for $100,000. Yarrow paid $25,000 down and agreed to pay $15,000 per year, plus interest, for the next five years, beginning in the second year. Under the installment method, what gain should Essex include in gross income for the year of sale?
$25,000
$20,000
$15,000
$ 5,000
$5,000
The total recognized gain from the sale is $20,000 ($100,000 selling price – $80,000 basis). Under the installment method, recognized income = cash collected × (gross profit/contract price). Therefore, $25,000 × ($20,000/$100,000) = $25,000 × 20% = $5,000.
