Indiv. 2008 TB Ch 5 - Chapter I:5 Property...

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Chapter I:5 Property Transactions-Capital Gains and Losses True-False I:5-1. All recognized gains and losses must eventually be classified either as capital or ordinary. T, p. I:5-2. I:5-2. Tax rates of 5% and 15% currently apply to capital assets sold by noncorporate taxpayers. T, p. I:5-2. I:5-3. A taxpayer sells an asset with a basis of $25,000 to an unrelated party for $26,000. The taxpayer has a realized gain of $1,000. T, p. I:5-2. Example I:5-1. Solution: To determine a realized gain or loss, the amount realized from the sale or other disposition of property is compared with the adjusted basis of the property. I:5-4. Gains and losses may be realized when property is disposed of by gift or bequest. F, p. I:5- 3. Solution: Gains and losses are generally not realized when property is disposed by gift or bequest. I:5-5. On January 1, 2007, Brad purchased 100 shares of stock at $1,000. By December 31, 2007, the stock had declined in value to $750. For 2007, Brad has realized a $250 loss for tax purposes. F, p. I:5-3. Solution: Mere changes in the value of property are not normally recognized as a disposition for purposes of determining a realized gain or loss. I:5-6. If Christine exchanges land subject to a liability of $20,000 with Rita for stock with a $25,000 FMV, and Rita takes the land subject to the liability, the amount realized by Christine is $45,000. T, p. I:5-3; Example I:5-5. Solution: $20,000 liability assumed + $25,000 FMV of stock. I:5-7. Rocky sells stock of Ty Corporation which has an adjusted basis of $20,000 for $22,000. He pays a sales commission of $500. In computing his gain or loss, the amount realized by Rocky is $22,000. F, p. I:5-4; Example I:5-6. Solution: The amount realized is $22,000 - $500 commissions = $21,500. I:5-8. The initial adjusted basis of property depends upon how the property is acquired. T, p. I:TB5-1
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I:5-4. I:5-9. Expenditures which do not add to the value or prolong the life of property may be expensed in the year in which they are incurred. T, p. I:5-4. I:5-10. The recovery of basis doctrine states that taxpayers are allowed to recover the basis of an asset without being taxed. T, p. I:5-4. I:5-11. All realized gains and losses are recognized for tax purposes. F, p. I:5-4. Solution: Special provisions in the tax law allow for the deferral, exclusion, or disallowance of certain gains/losses. I:5-12. Losses are generally deductible if incurred in carrying on a trade or business or incurred in an activity engaged in for profit. T, p. I:5-4. I:5-13. Realized losses on the sale or exchange of assets held for personal use are not recognized for tax purposes. T, p. I:5-5. I:5-14. If Houston Printing Co. purchases a new printing press during the current year for $3,000, pays sales taxes of $300, and pays $600 for installation, the cost basis for the printing press is $3,900. T, p. I:5-5; Example I:5-10.
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Indiv. 2008 TB Ch 5 - Chapter I:5 Property...

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