1) Estelle owns a pickup truck costing $16,000 that she uses in her personal activities. The truck had a $10,000 FMV when it was transferred to Estelle’s business, which she operates as a sole proprietorship.
a. What is Estelle’s basis in the truck for calculating depreciation? b. What is Estelle’s realized gain or loss on the truck if she sells it for $5,000 after claiming depreciation of $4,500?
2) Bill files as head of household in 2014. He had taxable income of $90,000, including the sale of stock he held for investment for two years for a $20,000 gain. Bill sold no other assets during the year, and he did not have any capital loss carryovers.
a. What is Bill’s 2014 tax liability? b. What would Bill’s 2014 tax liability be if he had held the stock for 10 months?
3) Bernice purchased land and a building for use in connection with her business. The costs associated with this purchase were:
Cash down payment $ 40,000
Mortgage on property 350,000
Survey costs 2,000
Title and transfer taxes 2,500
Charges for hookup of gas, water, and sewer lines 3,000
Seller-owed back property taxes paid by Bernice 5,000
What is Bernice's tax basis for the land and building?
a. $ 44,500 b. $394,500 c. $397,500 d. $402,500
4) Jasmine received a parcel of land as a gift from her Uncle Eustace. At the time of the gift, the land had a fair market value of $83,000 and an adjusted basis of $23,000. This was the only gift that Jasmine received from Eustace during 2014. If Eustace paid a gift tax of $15,000 on the transfer of the gift to Jasmine, what tax basis will Jasmine have for the land?
a. $23,000 b. $35,443 c. $36,043 d. $83,000
5) For tax purposes, which of the following costs must be included in inventory of a manufacturing company?
a. Raw materials b. Advertising c. Payroll taxes for factory employees d. Research and experimental costs e. Factory insurance f. Repairs to factory equipment g. Factory utility costs h. Factory rent
6) Klondike Construction Company is building a highway under a three-year construction contract. Klondike will receive $11,200,000 for building five miles of highway. Klondike estimates that it will incur $10,000,000 of costs before the contract is completed. At the end of year one, Klondike had incurred $3,000,000 of contract costs
a. How much income from the contract must Klondike report for year one?
b. Assume Klondike incurs an additional $5,000,000 of costs during the second year. How much income should be reported for that year? c. If Klondike incurs another $2,500,000 of costs in the third and final year of the contract, how much income must Klondike report for the third year. d. Will Klondike receive or pay look-back interest? Explain.
7) Denise married Glenn on January 10, 2014. Glenn sold his personal residence on October 25, 2013, and excluded the entire gain of $175,000. They had originally planned to live in the house that Denise had received as a gift from her parents in 2005, but they decided instead to purchase a larger house, and Denise sold her house 60 days after their wedding and realized a $370,000 gain.
a. If Denise and Glenn file a joint return, how much of the $370,000 gain may be excluded from income?
b. If Denise files as married filing separately, how much of the $370,000 gain may be excluded from income?
8) Jordan owns a building used in his business with an adjusted basis of $340,000 and a $750,000 FMV. He exchanges the building for a building owned by Dexter, whose building has a FMV of $950,000 but is subject to a $200,000 liability. Jordan assumes the liability and uses the building in his business. What is Jordan’s
a. realized gain? b. recognized gain? c. basis in the building received from Dexter?
9) Lloyd gifted property to Louise. Lloyd's basis in the property was $1,200. The fair market value at the time of the gift was $1,400. Louise sold the property for $2,500. What was the amount of Louise's gain on the disposition?
a. $0 b. $1,100 c. $1,300 d. $2,500
10) An office building owned by Elroy was condemned by the state on January 2, 2011. Elroy received the condemnation award on March 1, 2012. In order to qualify for nonrecognition of gain on this involuntary conversion, what is the last date for Elroy to acquire qualified replacement property?
a. August 1, 2013. b. January 2, 2014. c. March 1, 2015. d. December 31, 2015.
11) On July 1, 2014, Jennifer sold an antique for $12,000 that she had bought for her personal use in 2010 at a cost of $15,000. In her 2014 tax return, Jennifer should treat the sale of the antique as a transaction resulting in
a. A nondeductible loss. b. Ordinary loss. c. Short-term capital loss. d. Long-term capital loss
12) Ronald, a calendar-year taxpayer, purchased used furniture and fixtures for use in his business and placed the property in service on November 1, 2014. The furniture and fixtures cost $56,000 and represented Ronald’s only acquisition of depreciable property during the year. Ronald did not elect to expense any part of the cost of the property under Sec. 179. What is the amount of Ronald’s depreciation deduction for the furniture and fixtures under the Modified Accelerated Cost Recovery System (MACRS) for 2014?
a. $ 2,000 b. $ 2,667 c. $ 8,000 d. $16,000
13) Under the modified accelerated cost recovery system (MACRS) of depreciation for property placed in service after 1986, which of the following is correct”
a. Used tangible depreciable property is excluded from the computation.
b. Salvage value is ignored for purposes of computing the MACRS deduction.
c. No type of straight-line depreciation is allowable.
d. The recovery period for depreciable realty must be at least 27.5 years.
14) Brad Johnson owned a parcel of investment real estate that had an adjusted basis of $25,000 and a fair market value of $40,000. During 2013, Johnson exchanged his investment real estate for the items of property listed below.
Land to be held for investment (fair market value) $35,000
A small sailboat to be held for personal use (fair market value) 3,000
What is Johnson's recognized gain and basis in his new investment real estate?
15) An individual's losses on transactions entered into for personal purposes are deductible only if
a. The losses qualify as casualty or theft losses.
b. The losses can be characterized as hobby losses.
c. The losses do not exceed $3,000 ($6,000 on a joint return).
d. No part of the transactions was entered into for profit.
16) Janelle owned machinery which she had acquired in 2013 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 Janelle amounted to $125,000, and she immediately acquired a similar machine for $110,000.
What should Janelle report as ordinary income resulting from the involuntary conversion for 2014?
a. $14,000 b. $15,000 c. $25,000 d. $39,000
17) Conner purchased 300 shares of Zinco stock for $30,000 in 2010. On May 23, 2014, Conner sold all the stock to his daughter Alice for $20,000, its then fair market value. Conner realized no other gain or loss during 2014. On July 26, 2014, Alice sold the 300 shares of Zinco for $25,000.
a. What amount of the loss from the sale of Zinco stock can Conner deduct in 2014?
b. What was Alice's recognized gain or loss on her sale?
18) For a cash basis taxpayer, gain or loss on a year-end sale of listed stock arises on the
a. Trade date. b. Settlement date.
c. Date of receipt of cash proceeds.
d. Date of delivery of stock certificate.
19) Waylon exchanges unimproved land with a $50,000 basis and marketable securities with a $10,000 basis for a 10-unit apartment building having a $150,000 FMV. The land and marketable securities are held by Waylon as investments, and the apartment building is held as an investment. The marketable securities have a $25,000 FMV. What is Waylon’s realized gain, recognized gain, and his basis in the apartment building? 20) Ashton, a college student, bought a truck in 2012 for $6,000. He used the truck 70% of the time as a distributor for the local newspaper and 30% of the time for personal use. The truck has a five-year recovery period, and he claimed depreciation deductions of $840 in 2012 and $1,344 in 2013. Ashton sells the truck on June 20, 2014 for $3,000.
a. What is the amount of allowable depreciation in 2014?
b. What is Ashton’s realized and recognized gain or loss and what is its character?