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Solutions for Questions and Problems – Chapter 7
177
CHAPTER 8
CAPITAL GAINS AND LOSSES
Group 1  Multiple Choice Questions
1.
C
(Section 8.1)
10.
C
(Section 8.10)
2.
E
(Section 8.1)
11. D
($12,000 + 3,000)
3.
E
($77,500 – 55,000)
(Section 8.10)
(Section 8.3)
12.
E
($190,000 – 11,000 – 45,000)
4.
C
(Section 8.4)
– $250,000))
5.
C
8,446 + (15% x $50,000)
(Section 8.12)
(Section 8.4)
13.
D
(Section 8.8)
6.
C
(10% x $15,100) + (15% x $14,900)
14.
D
(Sections 8.6, 8.7)
+ (15% x $31,300) + (25% x
15.
B
(Sections 8.6, 8.7)
$8,700)
16.
E
(Section 8.7)
(Section 8.4)
17.
A
(Section 8.12)
7.
C
$30,000 + $4,000 + $2,000
18.
B
(Section 8.12)
– $5,000 (Section 8.6)
19.
A
(Section 8.12)
8.
A
(Section 8.6)
20.
B
($550,000 – 350,000) –
9.
D
(($150,000 – 90,000)
(18/24 x $250,000)
/ 150,000) x 30,000)
(Section 8.12)
(Section 8.9)
Group 2  Problems
1.
a.
$11,000 shortterm capital gain
= $25,000 – 14,000.
b.
$11,000 longterm capital gain
.
(Sections 8.1, 8.2, 8.3)
2.
a.
$128,500
= $30,000 + 105,000 – 6,500.
b.
$0 taxable gain;
the $53,500 gain ($128,500 – $75,000) is excluded from taxable income
(Sections 8.3, 8.12)
3.
$640,000
= $750,000 + 40,000 – 150,000.
(Section 8.3)
4.
a.
$4,000
gain = $12,500 – 8,500
b.
$3,900 loss
= $4,600 – 8,500.
Notice that since the fair market value of the gifted property
exceeded the basis of the property at the date of the gift, the recipient’s basis for gain and loss
is the same in both calculations
(Section 8.3)
5.
Sears stock
$10,000 – 13,000 = $3,000 longterm capital loss
Home Depot stock
$1,500 – 1,000 = $500 longterm capital gain
Net longterm capital loss = $2,500
Ford Motor bonds
$35,000 – 30,000 = $5,000 shortterm capital gain
Shortterm capital gain =
$2,500 ($2,500 net longterm capital loss and $5,000 net shortterm
capital gain)
.
(Sections 8.1, 8.2, 8.3, 8.4)
177
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Chapter 8 – Capital Gains and Losses
6. a.
$3,000
.
The amount of an individual taxpayer’s net capital losses which may be deducted against
ordinary income is limited to $3,000 annually.
b.
$44,000 longterm capital loss carryforward
= $45,000 – 1,000.
$0 shortterm capital loss carryforward
= $2,000 – 2,000.
c.
The longterm loss may be carried forward indefinitely.
(Section 8.5)
7.
See Schedule D on page 179.
(Sections 8.1, 8.2, 8.3, 8.5)
8.
See Form 4797 on page 181.
(Sections 8.3, 8.6)
9.
a.
$77,500 gain
= $130,000 + 55,000 + 45,000 – 152,500.
b.
See Form 6252 on page 183.
c.
$2,095
= 41.89% (from Form 6252, Part II) x $5,000.
(Sections 8.3, 8.9)
10.
a.
$60,000
. The gain recognized is equal to the lesser of the gain realized, $60,000 ($100,000 +
50,000 + 20,000 – 110,000), or the boot received, $70,000 ($20,000 cash + 50,000 relief of a
liability).
b.
$100,000
= $110,000 – 70,000 + 60,000.
The basis of the property received is equal to the basis
of the property given up plus the boot paid ($0 in this case) less the boot received plus the gain
recognized.
(Section 8.10)
11.
a.
$0
.
No gain is recognized since the amount of the insurance proceeds was fully reinvested.
b.
$285,000
= $425,000 – 140,000.
The basis is equal to the newly acquired property’s cost reduced
by the amount of the realized gain which is not recognized.
(Section 8.11)
12.
a.
$44,000
realized gain
b.
$ 0
recognized gain
c.
$148,000
adjusted basis of new residence
13.
a.
$19,000
= $35,000 – 16,000.
b.
$35,000
= $19,000 + 16,000.
The recomputed basis is equal to the adjusted basis plus the Section
1245 recapture potential.
c.
$6,000
= $25,000 – 19,000.
The ordinary income under Section 1245 is equal to the lesser of
(1) the recomputed basis ($35,000) less the adjusted basis ($19,000); or (2) the amount realized
($25,000) less the adjusted basis ($19,000).
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