Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CFP July 2022 > Tax Lesson 1 > Flashcards

Tax Lesson 1 Flashcards

You may prefer our related Brainscape-certified flashcards:
CFP® flashcards
1
Q

Most personal use assets are

A

Capital Assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Items that are not capital assets

A

ACID
Accounts & notes receivable
Copyright & created works if held by creator
Inventory
Depreciable property used in trade or business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Example Exam Question:
Which of the following is a capital asset?

A. Copyright on textbook owned by author
B. Painting owned by art collector
C. Office furniture used in business
D. Not receivable

A

B

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Ordinary income assets

A

When sold result in ordinary income

Usually include inventory, accounts receivable, creation/copyright in hands of creator

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Section 1231 Assets

A

Used in trade or business
Depreciable property
Real property
Do not include inventory, property held primarily for sale in ordinary course of trade/business, copyrights/created works
Specifically includes timber, coal, iron ore, livestock, unharvested crops

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

When property is acquired in taxable exchange, cost is:
When property is acquired subject to mortgage, basis is:
When property is acquired as a dividend in kind or compensation for services, basis is:

A

FMV
FMV
FMV at time of acquisition

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Example Exam Question:
Buys machine at $58,000. Pays freight of $6,000. Paid additional 5% purchase price in sales tax. Hired local company to install & paid $10,00. What is basis?

A. $64,000
B. $66,900
C. $74,000
D. $76,900

A

D

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Increases to Basis

A 
Capital improvements
Assessments for local improvements
Restoring damaged property after casualty loss
Legal fees
Zoning costs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Decreases to Basis

A

Exclusion from income of subsidies for energy conservation measures
Casualty/theft loss deductions & insurance reimbursements (business only)
Deduction for clean fuel vehicles
Section 179 deduction
Credit for qualified electric vehicles
Depreciation
Non taxable corporate distributions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Adjusted Taxable Basis - property acquired by non taxable exchange

A

Carryover basis if exchanged for equal value
Carryover + boot if exchanged for more valuable asset
Carryover - boot if exchanged for less valuable asset

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Special Basis Rules

A

Basis for inherited property is a step to FMV (up or down)

Holding period is always long term

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Example Exam Question:
Susie died & left niece 1000 shares of stock. Acquired December 12, 2021 for $25/share. Died February 14, 2022. Niece sold stock for $28/share on February 28, 2022. What is nature of her gain?

A. Short term capital gain
B. Long term capital gain
C. Part short term part long term capital gain
D. Ordinary income

A

B

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Gifted property general rule

A

Carryover basis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Gifted property exception 1

A 
When FMV less than donor’s basis
Double basis rule
For gains: carryover basis
For losses: FMV on date of gift
In between: doesn’t matter, no gain/loss
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Gifted property exception 2

A

Gift tax paid

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Basis when gift tax paid formula

A

Basis = donor’s basis + [(appreciation/value of taxable gift)x gift tax paid]

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Loss on gifted property

A

Basis is lower of donor’s basis or FMV at time of gift

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Holding period for gifted property

A

General rule: holding period includes donor’s time

If double basis asset sold for loss, holding period only donee’s time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Example Exam Question:
Mike gifted 100 shares stock to James. Mike had basis of $40/share. FMV at gift $65/share. What is James’ basis?

A. $25/share
B. $40/share
C. $65/share
D. $105/share

A

B

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Example Exam Question:
Mike gifted 100 shares stock to James. Mike had basis of $40/share and held for more than 2 years prior to gift. FMV at gift $65/share. If James sells for $90/share 10 months after date of gift, what will gain or loss be?

A. $2500 LTCG
B. $2500 STCG
C. $5000 LTCG
D. $9000 STCG

A

C

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Example Exam Question:
Allison gifted 100 shares stock to Joe. Allison’s basis $55/share & held more than 2 years. At gift: FMV $40. What are tax consequences to Joe if he sells 2 years after date of gift for $48/share?

A. $700 loss
B. $800 gain
C. $1500 gain
D. No gain/loss

A

D

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Example Exam Question:
Donna gifted 100 shares stock to Colin. Donna had basis of $40/share & held for more than 2 years. At gift $65/share. Donna paid $2600 gift tax. Annual exclusion did not apply. What is Colin’s basis in stock?

A. $25/share
B. $40/share
C. $50/share
D. $65/share

A

C

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Example Exam Question:
Sold land owned for $150,000. Received 5 years ago as wedding gift. Originally purchased many years ago for $20000. At gift worth $100000. Gift tax paid $47000 (annual exclusion did not apply). What is LTCG on sale?

A. $42400
B. $50000
C. $92400
D. $130000

A

C

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Divorce basis

A

Carryover

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Example Exam Question:
Carl & Caroline getting divorced. Carl agrees to pay $200/mo & transfer ownership of 2nd home (not personal residence) that has value or 300,000 mortgage of 140,000 & adjustable tax basis of 185,000. Owned 3 years. Within 3 months Carolyn sells home for 310,000. What are tax consequences?

A. 10,000 STCG & 115,000 LTCG
B. 125000 LTCG
C. 125000 STCG
D. No recognized gain due to 250000 exemption
E. 10000 STCG
A

B

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Related Party Transactions Rule

A

Only matters in loss
Double basis: FMV for losses, transferor’s basis for gains
Holding period always begins date of sale

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Example Exam Question:
Mel purchased 100 shares for $5000 3 years ago. Last week sold to brother Isaiah for $4200. Isaiah sells shares today for $4300. Which best represents Isaiah’s sale?

A. $100 LTCG
B. 100 STCG
C. 700 STCL
D. No tax loss or gain

A

D

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Example Exam Question:
Joe incurred extensive medical bills. Sibling Joseph purchased 300 shares stock 10 years ago for $8600. Worth $7500 currently. Joseph gifts to Joe for medical bills. Joe sells for $7400. Which best represents transaction for Joe?

A. $100 LTCL
B. $100 STCL
C. $1200 STCL
D. No tax loss or gain

A

B

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Bargain Sales to Charity

A

Basis= (amount realized/FMV) / original basis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Taxpayers with AGI over 200k (single) or 250k (mfj) also subject to

A

3.8% Medicare contribution tax on investment income for AGI that exceeds threshold

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

I’m calculating holding period, day of disposition in included

A

Day of acquisition is not included

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Gains only taxed when

A

Both realized & recognized

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Realized

A

Disposition of asset

Segregation of gain

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Recognition

A

When gain is taxed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Amount realized - adjusted basis = __?

Cost of property + capital additions - cost recovery = __?

A

Realized gain/loss

Adjusted basis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

Ordinary gains are

Ordinary losses are

A

Fully taxable

Fully deductible

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Capital gains/losses

A

Subject to special tax treatment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

Party giving up or shedding debt

A

Seemed to have additional amount realized

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

Party taking in debt

A

Depends to be paying that amount in the exchange

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

Sale of mortgaged real estate can yield

A

Phantom income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

Losses generated on personal property exchanges/sales

A

Not permitted for tax deduction

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

Index fund for index fund

Index fund for managed large cap fund

A

Yes wash sale

Not not wash sale

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

Wash sale rules apply to sales/trades of contracts & options

A

Do not apply to sales/trades of commodity futures & foreign currencies

44
Q

To use gain exclusion on home

A

Both must meet use requirement (2/5 years) - 1 yr stay in nursing home doesn’t count
One must meet ownership requirement of 5 years

45
Q

Reduced exclusion if you don’t meet use/owning requirements if

A

Change in employment
Change in health
Other unforeseen circumstances

46
Q

Example Exam Question:
MFJ. Purchased home 18 months ago for $685000. Sold today for 925000 & want to know tax consequences. Required to move because of employment. How much gain must be recognized this year?

A. $0
B. $240000
C. $375000
D. $925000

A

A

47
Q

Example Exam Question:
Bought beach front to rent out for next year until retire & move there permanently. Purchase price $300000. Rents totaled $45000. Promptly moved to home & lived 4 years before downsizing to be closer to family. If sales price is $500000, how much gain is taxable?

A. $0
B. $20000
C. $40000
D. $200000

A

C

48
Q

Loss resulting from worthless securities

A

Deductible in year securities became completely worthless

49
Q

When netting short & long term, if excess losses result

A

Shifted to category carrying highest tax rate

50
Q

Net capital losses deductible for AGI up to

A

3000/year
Excess carried over
Retain classification of short or long term

51
Q

Example Exam Question:
Gain on sale 12,000 purchase held 18 months
Gain on sale 6,200 inheritance held 6 months
Gain on sale 7,500 gift, donor held 2 year
Loss on sale 14,000, purchase held 3 months
Loss on sale 3,000, purchase held 2 years

What is net capital gain or loss?
A. LTCG 22700
B. LTCG 8700
C. STCL 14000
D. LTCL 3000, carryover STCL 11000
A

B

52
Q

Example Exam Question:
What is net LTCG & LTCL from previous question?

A. LTCL $21400
B. LTCG $16500
C. LTCL $9000
D. LTCG $22700

A

D

53
Q

Example Exam Question:
What is net STCG & STCL from previous question?

A. STCL $300
B. STCL $6500
C. STCL $7800
D. STCL $14000

A

D

54
Q

Capital gain recognized to full extent each year regardless of size

A

Capital loss only recognized up to what offsets gains with additional $3000/year with indefinite carryover

55
Q

Single taxpayer can deduct $50k of loss on small business stock as ordinary loss in any given year if following requirements are met:

A

Domestic corp
Small business corp when stock issued
Incorporated after nov 6 1978
Loss sustained by original owner of stock who is not corporation, trust, or estate
Issued to original owner for money or property
For 5 years prior to loss, corp must have earned more than 50% gross receipts from actual income sources

56
Q

Related Parties include

A 
Siblings (half but not step)
Children
Grandchildren
Parents
Grandparents
Spouse
57
Q

Related Parties Do Not Include

A

In laws
Aunts/Uncles
Cousins

58
Q

Example Exam Question:
Bill owns 1000 shares stock. Bought in 1988 for 40000. Current FMV 32000. Sells to brother Jack for 32000. Brother sells to friend for 38500 six months later. What are tax consequences to Bill & Jack?

A. 8000 LTCL to bill, 6500 LTCG to Jack
B. 8000 LTCL to bill, 6500 stcg to Jack
C. No gain/loss to bill, no gain/loss to Jack
D. No gain/loss to bill, 3500 LTCL to Jack

A

C

59
Q

To be classified as 1232 asset

A

Must have long term holding period (>1 year)

60
Q

Example Exam Question:
Which is not section 1231 asset?

A. Copyright owned by author
B. Timber
C. Coal
D. Same sex livestock

A

A

61
Q

1231

A

Gains - capital gains
Losses - ordinary income
If in 15% or lower tax bracket for ordinary income, 0% capital gains rate will apply

62
Q

C Corps do not benefit for 1231

A

Taxes at same rate for both ordinary income & capital gains

63
Q

Section 1245 Property

A

Ordinary income for depreciation recapture then LTCG rates after
Tangible property used in trade or business

64
Q

Section 1250

A

Excess depreciation taxed ordinary income
Depreciation taxed 25%
Remainder taxed LTCG rate
Real property used in business

65
Q

The only way to have a section 1231 gain on section 1245 property is to

A

sell for more than originally purchased for

66
Q

Example Exam Question:
Sells equipment used for business for $18000. Originally purchased for $15000 taken $7000 depreciation. What is section 1231 gain?

A. $11000
B. $8000
C. $7000
D. $3000

A

D

67
Q

Example Exam Question:
In previous question, how much gain is taxed as ordinary income?

A. $0
B. $11000
C. $3000
D. $7000

A

D

68
Q

Any sale amount in excess of original purchase price of section 1245 asset is

A

1231 gain

69
Q

All section 1250 losses are

A

Ordinary losses

70
Q

5 Year Lookback Rule

A

Net section 1231 gain in current year will be taxed at ordinary income rates to extent of any 1231 losses in last 5 years

71
Q

Non taxable exchanges

A

Non recognition:
Realized, like kind exchanges, principal residence, investment real estate, life insurance policies
Non taxable transactions:
Realized not currently recognized, postponed recognition, carryover basis, holding period carryover, depreciation recapture
Tax free transaction:
No recognition of gain is permanent

72
Q

Like Kind Exchanges (section 1231)

A

Deferred taxation of gains
Only real property if held for productive use or as investment
Not personal assets, stocks, other securities, tangible property
Similar character/nature (broad)

73
Q

When like kind exchange treatment available

A

Mandatory

74
Q

To avoid taxation in 1031

A

Proceeds must be held in escrow
Replacement property identified within 45 days of sale
Closing must take place earlier of: 180 days from sale or due date of tax return for year original property was sold

75
Q

1031 basis & holding period

A

Carryover

76
Q

Non-like kind property & cash received

A

Boot (can reduce basis when paid in excess of gain)

77
Q

Mortgage transfer in 1031 is considered

A

Boot
(If giving mortgage, receiving boot)
(If undertaking mortgage, giving boot)

78
Q

Example Exam Question:
Exchange like kind real estate assets:
Jack: fmv 50k, adj tax basis 23k
Jill: fmv 70

If Jack pays Jill cash of 20k + asset, how much does Jack recognize?

A. $0
B. $20k
C. $23k
D. $27k

A

A

79
Q

Example Exam Question:
From previous, what is Jack’s new basis?

A. $20k
B. $23k
C. $27k
D. $43k

A

D

80
Q

Example Exam Question:
From previous, assume Jill’s adjusted basis in original asset was $45k. How much gain must Jill recognize?

A. $5k
B. $10k
C. $15k
D. $20k

A

D

81
Q

Example Exam Question:
From previous, how much is Jill’s basis in new asset given old basis was $45k?

A. $50k
B. $25k
C. $20k
D. $45k

A

D

82
Q

Example Exam Question:
From previous, assume Jill’s basis in old asset $55k. How much gain must Jill recognize on transaction?

A. $5k
B. $10k
C. $15k
D. $20k

A

C

83
Q

Example Exam Question:
From previous, what is Jill’s basis in new asset of original basis $55k?

A. $50k
B. $45k
C. $40k
D. $35k

A

A

84
Q

Related Parties Like Kind Exchanges

A

If within 2 years, both must recognize gain/loss from time of exchange
Includes siblings, spouse, ancestors, descendants
In business, controlled corp & corps that are members of control group
Does not apply if either party does before sale occurs or taxpayer can demonstrate to satisfaction of IRS avoidance of tax was not principal purpose of sequence of transactions

85
Q

Exchanges of stock for property:

A

No gain/loss recognized when corp receives money or property in return for stock
1032, sale of stock to investors treated as infusion of capital - no income tax

86
Q

Involuntary Conversions

A

Destruction, theft, seizure, condemnation, sale/exchange from threat of condemnation, eminent domain

87
Q

1033 permits nontaxable treatment of gains of amount reinvested in replacement equals/exceeds amount realized

A

Replacement property must be:
Similar in function or use
Acquired within 2 years (3 for condemnation) from year end of year gain realized

88
Q

Functional use for owner-user

Taxpayer use for owner-investor

A

Replacement property must serve same functional use

Must be used in similar activity as original property

89
Q

Example Exam Question:
Office building destroyed by hurricane. Destroyed aug 29, yr 1. FMV $1m. Adjusted basis $450k. Insurance adjuster determines feb 14, yr 2 should be paid $1m, what is last date can reinvest under section 1033 to avoid recognition of gain?

A. Aug 29, yr 3
B. Aug 29, yr 4
C. Dec 31, yr 3
D. Dec 31, yr 4

A

D

90
Q

Example Exam Question:
From previous, how much cash must be invested to avoid recognition?

A. $0
B. $450k
C. $550k
D. $1m

A

A

91
Q

Insurance - Section 1035

A

Ordinary life for life insurance on same individual or endowment or annuity
Endowment May be exchanged for endowment with payments no later than original or annuity
Annuity May be exchanged for annuity on same person (no for life insurance or endowment)
Transferred basis rules apply, cash received will trigger gain
Losses not deductible

92
Q

Example Exam Question:
Which of the following are correct tax free exchanges?

  1. Life insurance for life insurance
  2. Life insurance for annuity
  3. Annuity for annuity
  4. Annuity for life insurance

A. 1 only
B. 1,2
C. 1,2,3
D. 1,2,3,4

A

C

93
Q

Transactions Divorce

A

Nontaxable

Carryover basis

94
Q

Lesson 1 Review:
Stock transactions this year:
Purchased last year Oct 31 for $12,000. March 5 of this year completely worthless.
Purchased 1244 stock several years ago for $200,000. Sold for $100,000 this year.
What is net long-term loss for current year?

A. $12,000
B. $50,000
C. $62,000
D. $112,000

A

C

95
Q

Lesson 1 Review:
Owned securities. Paid $5000 for shares & sold for $7000. Twenty days later purchased identical shares for $6500. Which is true?

A. Wash sale rules will apply
B. Stock will receive section 1244 treatment
C. Stock will receive like kind treatment
D. Basis in new shares is $6500

A

D

96
Q

Lesson 1 Review:
Received gift of property from mom. Mom had basis of $50000. Worth $100000 at dare of transfer. Mom paid gift tax of $45000. Annual exclusion does not apply. What is daughter’s basis?

A. $50000
B. $72500
C. $95000
D. $100000

A

B

97
Q

Lesson 1 Review:
Made several exchanges during the year. Which qualifies for like-kind treatment?

A. Personal auto for brother’s auto
B. Cow used in farm business for steer
C. Unimproved land held for investment for apartment building held for investment
D. Inventory items that were brown for inventory items that were red

A

C

98
Q

Lesson 1 Review:
Machine used in business. Downsizing & needs smaller machine. Local business owner offered to enter exchange. Morgan will receive Caleb’s machine worth $75000 & $25000 cash in exchange for her machine worth $100000. Morgan’s basis $80000. Caleb’s basis $25000. What is Morgan’s new basis?

A. $25000
B. $75000
C. $80000
D. $100000

A

B

99
Q

Lesson 1 Review:
Business property destroyed by fire. Original basis $250000. Insurance proceeds $600000. Acquired replacement property 2 months later & paid $620000 for new property. What is basis in new property?

A. $250000
B. $270000
C. $600000
D. $620000

A

B

100
Q

Lesson 1 Review:
S & K married last year. Lived in K’s home after getting married. Kevin has lived in & owned home for 5 years. S. Has lived there 9 months. Sold because K’s job transferred him to another state. Basis in home is $400000 FMV is $1000000. What is the gain that will be recognized on sale of home?

A. $100000
B. $256250
C. $412,250
D. $600000

A

B

101
Q 
Lesson 1 Review:
Had following gains/losses for the year. 
LT loss: $45000
ST loss: $15000
LT gain: $20000
ST gain: $19000

How much gain/loss will be deducted on tax return?

A. $0
B. $3000 against ordinary income
C. $21000 long term loss
D. $4000 short term gain & $25000 long term loss

A

B

102
Q

Lesson 1 Review:
Which is 1231 asset?

A. Machine used in business purchased 6 months ago
B. Land used in business purchased 10 years ago
C. Inventory of a business
D. Accounts receivables of a business

A

B

103
Q

Lesson 1 Review:
Company purchased machine several years ago. Has taken depreciation deductions of $40000. Originally purchased for $90000. If sold today for $120000, how much ordinary income recognized?

A. $0
B. $30000
C. $40000
D. $70000

A

C

104
Q

Lesson 1 Review:
Company purchased business real estate many years ago used in business. Purchase price $1m. Has taken depreciation deductions of $800k, $500k straight line. If company sells property today for $2m, what are tax consequences?

A. $1.8m taxed at 20%
B. $300k ordinary income, $500k 25%, $1m 20%
C. $1.5m taxed at 20%
D. $500k at 25%, $1m at 20%

A

B

105
Q

Lesson 1 Review:
Ben sold land to brother on January 1 current year. Ben had basis of $40k & sold for $240k. Sold land to bro using installment sale. Bro will pay $2000/mo for 10 years plus applicable rate of interest. 6 months after purchasing land, bro sold property for $300k. How much gain will bro recognize in current year if 12 payments were made?

A. $4000
B. $20000
C. $200000
D. $260000

A

C

106
Q

Lesson 1 Review:
Grandma gave stock at death 5 years ago to Ginger. Grandma paid $100. Valued at $5000 when died. Ginger gave to daughter 2 years ago. Worth $4000 at transfer. Daughter sold for $4500 today. What is gain/loss?

A. $0
B. Loss of $500
C. Gain of $500
D. Gain or $4400

A

A

CFP July 2022 (24 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions