Tax Flashcards
A taxpayer lived in an apartment building and had a two-year lease that began 16 months ago. The taxpayer’s landlord wanted to sell the building and offered the taxpayer $10,000 to vacate the apartment immediately. The taxpayer’s lease on the apartment was a capital asset but had no tax basis. If the taxpayer accepted the landlord’s offer, the gain or loss would be which of the following?
Since the lease is a capital asset the gain is capital in nature. The gain is long-term since the lease is more than one year.
Capital losses in excess of gains may not be used to reduce the taxable income of the corporation. However, the unused capital losses may be carried back for three years and carried forward five years. Since Ral Corp. only has a capital loss of $5,000 and NO capital gain with which to offset the loss, the corporation may not deduct any of the loss. The $5,000 capital loss may be carried back for three years and carried forward five years.
A corporation’s capital losses are Deductible only to the extent of the corporation’s capital gains.
no gain cant deduct
carry back 3/ forward 5yr
Jackson, a single individual, inherits Bean Corp. common stock from his parents. Bean is a qualified small business corporation under Code Section 1244.
The stock costs Jackson’s parents $20,000 and has a fair market value of $25,000 at the parents’ date of death. During the year, Bean declares bankruptcy and Jackson is informed that the stock is worthless.
What amount may Jackson deduct as an ordinary loss in the current year?
$0
To quality for ordinary treatment, 1244 stock must be issued to the taxpayer for money or other property transferred by the taxpayer to the corporation.
Under modified accelerated cost recovery system (MACRS) depreciation for property placed in service after 1986
Salvage value is ignored for the purposes of computing the MACRS deduction
Investment property does qualify under the like-kind exchange rules, but securities & inventory are not considered like-kind to antiques.
true
In 2013 Studley Corporation, not a dealer in securities, realized taxable income of $80,000 from the operation of its business. Additionally in 2013, Studley realized a long-term capital loss of $12,000 from the sale of marketable securities. Studley had not realized any other capital gains or losses since it began operations. What is the proper treatment for the $12,000 long-term capital loss in Studley’s income tax return?
Carry the $12,000 long-term capital loss forward 5 years, treating it as a short-term capital loss.
Corp can’t deduct LTCL against income, only against CG. A net capital loss is carried back 3 years, and forward 5 years to offset capital gains in those years. All capital loss carrybacks and carryovers are treated as short-term capital losses.
David Price owned machinery which he had acquired in 2012 at a cost of $100,000. During 2014, the machinery was destroyed by fire. At that time it had an adjusted basis of $86,000. The insurance proceeds awarded to Price amounted to $125,000, and he immediately acquired a similar machine for $110,000. What should Price report as ordinary income resulting from the involuntary conversion for 2014?
14k
the realized gain from involuntary conversion of $39,000 ($125,000 insurance proceeds – $86,000 adjusted basis) is recognized only to the extent that the insurance proceeds are not reinvested in similar property. This results in a recognized gain of $15,000 ($125,000 – $110,000). Because the machinery was Sec. 1245 property, this recognized gain of $15,000 is recaptured as ordinary income to the extent of the $14,000 of depreciation previously deducted, while the remaining $1,000 is classified as Sec. 1231 gain.
Which one of the following would not be Sec. 1231 property even though held for more than 12 months?
Copyrights, literary, musical, or artistic compositions held by a taxpayer whose personal efforts created such property.
If an individual incurs a loss on a nonbusiness deposit as the result of the insolvency of a bank, credit union, or other financial institution, the individual’s loss on the nonbusiness deposit may be deducted in any one of the following ways except
Long-term capital loss.
A loss resulting from a nonbusiness deposit in an insolvent financial institution is generally treated as a nonbusiness bad debt deductible as a short-term capital loss. However, subject to certain limitations, an individual may elect to treat the loss as a casualty loss or as a miscellaneous itemized deduction.
holding period of the new shares from stock dividend includes the holding period of the old shares
true
Perle, a dentist, billed Wood $600 for dental services. Wood paid Perle $200 cash and built a bookcase for Perle’s office in full settlement of the bill. Wood sells comparable bookcases for $350.
What amount should Perle include in taxable income as a result of this transaction?
$550
Charles and Marcia are married cash-basis taxpayers. In 2014, they had interest income as follows:
- $500 interest on federal income tax refund.
- $600 interest on state income tax refund.
- $800 interest on federal government obligations.
- $1,000 interest on state government obligations.
What amount of interest income is taxable on Charles and Marcia’s 2014 joint income tax return?
state government obligations not taxable only
tax overpaid last year receive refund this yr
deduct from last year & report refund as income
Lyle Corp. is a distributor of pharmaceuticals and sells only to retail drug stores. Lyle received unsolicited samples of non-prescription drugs from a manufacturer.
Lyle donated these drugs to a qualified exempt organization and deducted their fair market value as a charitable contribution.
What should be included as gross income in Lyle’s return for receipt of these samples?
FMV, to offset the contribution made
Porter was unemployed for part of the year in 2014. Porter received $35,000 in wages, $4,000 from a state unemployment compensation plan, and $2,000 from his former employer’s company-paid supplemental unemployment benefit plan. What is the amount of Porter’s gross income in 2014?
all include
