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# SM08 - Solutions for Questions and Problems Chapter 7 177...

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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 short-term capital gain = \$25,000 – 14,000. b. \$11,000 long-term 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 long-term capital loss Home Depot stock \$1,500 – 1,000 = \$500 long-term capital gain Net long-term capital loss = \$2,500 Ford Motor bonds \$35,000 – 30,000 = \$5,000 short-term capital gain Short-term capital gain = \$2,500 (\$2,500 net long-term capital loss and \$5,000 net short-term capital gain) . (Sections 8.1, 8.2, 8.3, 8.4) 177

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178 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 long-term capital loss carryforward = \$45,000 – 1,000. \$0 short-term capital loss carryforward = \$2,000 – 2,000. c. The long-term 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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