CHAPTER 14 PROPERTY TRANSACTIONS: CAPITAL GAINS

1. The tax law requires
that capital gains and losses be separated from other types of gains and losses
because an alternative tax calculation may be used when taxable income includes
net long-term capital gain.
a. True
b. False

2. The tax law requires
that capital gains and losses be separated from other types of gains and losses
because there are limitations on the deduction of net capital losses.
a. True
b. False

3. If a capital asset is
sold at a gain, the holding period is important.
a. True
b. False

4. An accrual basis taxpayer
accepts a note receivable from a retail customer with a weak credit rating. The
taxpayer immediately sells the note to a bank for less than the note’s stated
value. The taxpayer has an ordinary loss.
a. True
b. False

5. A business taxpayer
sells depreciable business property with an adjusted basis of $40,000 for
$32,000. The taxpayer held the property for more than a year. The taxpayer has
an $8,000 capital loss.
a. True
b. False

6. An individual
taxpayer received a valuable painting from his uncle, a famous painter. The
painter created the painting. After the taxpayer held the painting for two
years, he sold it for a $400,000 gain. The gain is a long-term capital gain.
a. True
b. False

7. Since the Code
section that defines “capital asset” says what is nota capital asset, other Code sections have to help determine
what is and what is not a capital gain or loss.
a. True
b. False

8. Individuals who are
not professional real estate developers may get capital gain treatment for sale
of their real property if they engage only in limited development activities.
a. True
b. False

9. The subdivision of
real property into lots for resale when no substantial physical improvements
have been made to the property never causes the gain from sale of the lots to
be treated as ordinary income.
a. True
b. False

10.A security that was
purchased by an individual and qualifies as § 1244 stock becomes worthless. The
taxpayer is single and the loss is $30,000. The loss is treated as an ordinary
loss.
a. True
b. False

11.For tax purposes,
there is no original issue discount on a bond unless the bond is issued for
less than its face value and the difference between the face value and the bond
issue price is at least one-fourth of 1 percent of the redemption price at
maturity multiplied by the number of years to maturity.
a. True
b. False

12.If the holder of an
option fails to exercise the option, the lapse of the option is considered a
sale or exchange on the option expiration date.
a. True
b. False

13.The only things that
the grantee of an option may do with the option are exercise it or let it
expire.
a. True
b. False

14.When a patent is
transferred, the most common forms of payment received by the transferor are a
lump sum and/or periodic payment.
a. True
b. False

15.A franchisor licenses
its mode of business operation to a franchisee.
a. True
b. False

16.A lease cancellation
payment received by a lessee is generally treated as an exchange because the
lease extinguished is usually a capital asset.
a. True
b. False

17.Lease cancellation
payments received by a lessor are always ordinary income because they are
considered to be in lieu of rental payments.
a. True
b. False

18.To compute the
holding period, start counting on the day after the property was acquired and
include the day of disposition.
a. True
b. False