Tax Consequences - Sample Questions 1 - 10

1. John traded a building with an adjusted basis of $200,000 and a FMV of $300,000 to Tim for a similar building. Tim paid $150,000 for his building, which is now worth $225,000. Tim also gave $25,000 cash and $20,000 worth of computer equipment in the exchange. What is John's realized gain on the like-kind exchange?

A) $50,000
B)
$60,000
C)
$70,000
D)
$80,000

2. Larry and Lisa (brother and sister), did a like-kind exchange of property. One year later, Larry disposes of the newly exchanged property. All of the following are true statements EXCEPT?

A) Larry will not receive a favorable tax-free treatment on the exchange.
B)
If the disposition is due to Larry's death, the exchange will still be tax-free.
C)
If Larry transferred the property to his spouse, the previous exchange stays tax-free.
D)
Larry will have to compute a new adjusted basis on the new property.

3. Austin wants to do a like-kind exchange of his fishing charter boat for a smaller charter boat for his business. Austin received $10,000 in cash from the exchange. Additional facts about the exchange include the following:

The new boat has an adjusted basis of $17,000.

The new boat has a FMV of $20,000.

Austin's boat has an adjusted basis of $28,000.

Austin's boat has a FMV of $29,000.

What will be Austin's recognized gain in the new boat?

A) $2,000
B)
$4,000
C)
$8,000
D) $10,000

4. Using the same information on Austin's like-kind exchange in question #3 above, what will be Austin's adjusted (or substitute) basis in the new boat from the exchange?

A) $17,000
B)
$18,000
C)
$19,000
D)
$20,000

5. Nate exchanged a large business printing press with his Uncle Tom for a parcel of investment land. He also gave his Uncle $20,000 in cash to make the deal even. Which of the following is TRUE?

A) This transaction qualifies as a "like-kind" exchange.
B)
Uncle Tom can sell the printing press in 18 months.
C)
Nate must wait two years to sell the property to retain tax-free status.
D) Nate must file Form Schedule B to report the exchange.


6. Frank, a single tax filer, sold his primary residence this year for $725,000. He lived in the house for three out of the last five years, and this is his first home ever owned. He paid $250,000 for the house eight years ago and made capital improvements of $30,000 since that time. He also had repair bills of $10,000 and received $5,000 in insurance funds for a casualty loss. What is the gain he must report from the sale?

A) $0
B)
$100,000
C)
$190,000
D) $200,000

7. Zach Smith started Smith Construction, Inc. as a regular C Corporation several years ago, and issued Section 1244 stock to himself with a $125,000 investment. Zach is married and files a joint return. The business failed and now the stock is worthless. Which of the following is/are the correct tax deduction(s) for Zach for the stock in the year of the closing?

I. $50,000 Ordinary Loss
II. $100,000 Ordinary Loss
III. $3,000 Capital Loss
IV. $25,000 Capital Loss

A) I only
B)
II only
C)
II and III only
D) II and IV only

8. Henry Putnam sold a parcel of land for $800,000, and his cost basis in the land was $400,000. The sale was an installment sale with a down payment of $100,000, and a seven-year note for the remainder plus 8% interest. What is the gross profit percentage to use for gain computation?

A) 40%
B) 50%
C) 60%
D)
75%

9. On December 1, Edna sells 100 shares of XYZ stock in her personal account and realizes a $10,000 long-term loss on the sale. Earl (Edna's husband), buys 100 shares of XYZ stock on December 15 of the same year in his revocable trust. Earl then sells the shares in July of the following year. What is Edna's deductible tax-loss for the year of sale?

A) $0
B) $1,500
C) $3,000
D)
$10,000

10. Nancy just computed her year-end capital gains and losses from her brokerage account. She came up with the following figures:

Short-term losses: $24,000
Long-term losses: $10,000
Short-term gains: $5,000
Long-term gains: $15,000

Which of the following are TRUE statements?

I. She has a net short-term loss of $19,000.
II. She has net long-term gain of $15,000.
III. She has a carry forward short-term loss of $11,000.
IV. She can take a $3,000 capital loss on her tax return for this year, after net gains and losses are offset.

A) I and II only
B)
I and III only
C)
II, III and IV
D)
I, III and IV
E) I, II, III and IV

Answer Key


Related Articles
  1. Active Trading

    Trade Properties To Keep The Taxman At Bay

    Like-kind exchanges can mean a much lower tax bill on real estate for savvy investors.
  2. Credit & Loans

    Where To Get A Loan For A Boat Or Yacht

    If having a boat has always been your dream, here are the steps to take to finance it.
  3. Investing

    How Does a Tax-Free Exchange Work?

    In regards to the sale of property, particularly in real estate, a 1031 exchange is increasingly being recognized for its tax benefits to investors of all levels.
  4. Your Clients

    Here's the Best Way to Skirt Capital Gains Taxes

    Taxpayers who know the rules for netting gains/losses can generate additional losses to net against the taxable gains in their portfolios. Here's how.
  5. Taxes

    How To Prevent A Tax Hit When Selling A Rental Property

    Rental property ownership has its benefits but when selling you can face a big tax hit. Thankfully there are ways to reduce your capital gains exposure.
  6. Taxes

    Capital Losses and Tax

    When an investment sells for less than its purchase price, the difference is a capital loss.
  7. Taxes

    Here's How to Deduct Your Stock Losses From Your Tax Bill

    Learn the proper procedure for deducting stock investing losses, and get some tips on how to strategically take losses to lower your income tax bill.
  8. Investing News

    Austin Set to Rival Silicon Valley (GOOG, AAPL)

    Over the years, Austin, Texas has lovingly embraced its quirky reputation with the slogan “Keep Austin Weird.” Today, the capital city is attracting several tech startups and investors, making ...
  9. Investing

    Top Tips for Deducting Stock Losses

    Investors who know the rules can turn their losing picks into tax savings. Here's how to deduct your stock losses.
  10. Personal Finance

    Leasing a Yacht: A Step-by-Step Guide

    When you charter a boat, you can indulge your dreams of sailing the seas without the outlay of an actual purchase.
RELATED TERMS
  1. Like-Kind Exchange

    A tax deferred exchange that allows for the disposal of an asset ...
  2. Section 1031

    A section of the U.S. Internal Revenue Service Code that allows ...
  3. Short-Term Loss

    A capital loss realized on the sale or exchange of a capital ...
  4. Like-Kind Property

    Any two assets or properties that are considered to be the same ...
  5. Reverse Exchange

    A type of property exchange wherein the replacement property ...
  6. Yacht Insurance

    An insurance policy that provides indemnity liability coverage ...
RELATED FAQS
  1. Which statement(s) is/are FALSE about market risk?

    I. It is mitigated by writing calls.II. It includes the risk the investor will lose invested principal.III. It is the same ... Read Answer >>
  2. Which statements about common shareholder rights are FALSE? I. A shareholder may ...

    The correct answer is a. I should be the the other way around: convertible bond holders can exchange their bonds for shares. ... Read Answer >>
  3. Your client has a net short-term gain of $3,000 and a net long-term loss of $8,0 ...

    I. The short-term gain is fully taxableII. $3,000 of capital loss is deductible against earned incomeIII. There is a long-term ... Read Answer >>
  4. Which of the following statements is(are) true with respect to the factors that ...

    The correct answer is: c) (I) is incorrect because while he amount of new underwriting business that may be undertaken is ... Read Answer >>
  5. If a sales representative moves from one broker-dealer to another ...

    The correct answer is b. I, II and III are correct since all parties are required to notify the Administrator. Read Answer >>
  6. Which of the following are tools that are employed by the Federal Reserve in its ...

    I. Moral suasionII. Changing the discount rateIII. Changing the reserve requirementIV. Changing the prime interest rate A. ... Read Answer >>
Hot Definitions
  1. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  2. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  3. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  4. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  5. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  6. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
Trading Center