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?
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?
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?
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?
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?
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?
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