FALL, 2007- PRACTICE FINAL
For each of the following, please indicate whether the statement is TRUE (by marking
"a") or FALSE (by marking "b"):
1. Gary had taxable income of $ 50,000, before factoring in his sale of rental real estate that
resulted in a $ 60,000 loss.
Gary's ordinary taxable income for the year is $ 47,000.
2. Ren died on March 10, 2007, bequeathing his entire estate of $ 1,500,000 to his brother
The estate's executor validly elected the alternative valuation date.
Ren's estate included
2,000 shares of stock in Log, Inc., for which Ren's basis was $ 380,000.
The stock was distributed to
Stimpy 9 months after Ren's death.
The stock's fair market value was $ 400,000 when Ren died,
$ 450,000 six months later and $ 480,000 when Stimpy received the stock.
On December 1, 2008,
Stimpy sold the stock for $ 550,000.
Stimpy recognizes a long term
capital gain of $ 100,000 from
3. Payton buys a rental house for $ 50,000.
During the five years he owns the house he
spends $ 5,000 to build a new porch, $ 2,000 in repairs to the roof and plumbing, and he takes
$ 5,000 in depreciation for home-office use.
His adjusted basis for the property is $ 52,000.
For Questions 4 – 7, please refer to the following set of
Eminem owned and operated a
night club called “Trash My Mother.”
In the last four years he has sold the following items of
depreciable business property (assume any losses were taken in the years incurred):
Stereo Equipment purchased in 2001 for $ 5,000, depreciated by $ 2,000 and sold for $
A small office building purchased in 1988 for $ 120,000, depreciated by $ 30,000 and
sold for $ 80,000.
A Toyota Pick-Up Truck purchased in 2002 for $ 25,000, depreciated by $ 10,000 and sold
for $ 10,000.
An apartment building purchased in 1985 for $ 100,000, depreciated by $ 70,000 under
accelerated depreciation (straight line would have been $ 60,000), and sold in 2007 for
4. His losses for 2004, 2005 and 2006 would be considered Long Term Capital Losses.
Only the items sold in 2004 and 2005 would be considered Section 1245 property.
The apartment building sold in 2007 would also be considered Section 1245 property
because it was purchased during the “Reagan years” (1981 to 1986).
The apartment building sold in 2007 would generate an ordinary gain of $ 27,000, an
unrecaptured Section 1250 gain of $ 60,000 (taxed at 25%) and a Section 1231 gain of
$ 163,000 (taxed at the LTCG rate of 5 or 15%).
Ben Dover owned a parcel of investment real estate that had an adjusted basis of
$ 25,000, a fair market value of $ 40,000 and a mortgage of $ 3,000.
During 2006, Dover exchanged
this property with Hau Lo for another parcel of land held for investment (Basis of $ 18,000 and FMV
of $ 30,000).
Lo assumed Dover's mortgage and also paid Dover $ 2,000 cash as part of the deal.
Dover must recognize