Chapter 16 - CHAPTER 16-PROPERTY TRANSACTIONS: CAPITAL...

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CHAPTER 16—PROPERTY TRANSACTIONS: CAPITAL GAINS AND LOSSES TRUE/FALSE 1. A personal automobile (i.e., one that is owned by the taxpayer and driven for personal purposes) is an example of a capital asset. ANS: T Personal use assets are examples of capital assets. PTS: 1 REF: pp. 16-3 through 16-5 2. Undeveloped vacant real estate held exclusively for speculation is treated as business property and does not qualify as a capital asset. ANS: F Assets held strictly as investments, such as much unused undeveloped real estate, are capital assets. Land used in a trade or business is § 1231 property rather than a capital asset. PTS: 1 REF: pp. 16-3 through 16-5 3. In order for real property to be considered ordinary income property (i.e., inventory rather than a capit- al asset), the taxpayer's livelihood must be derived primarily from buying and selling real estate. ANS: F A taxpayer who merely improves or subdivides real estate before selling it or who makes frequent or continuous sales can easily end up reporting ordinary income or loss rather than capital gain or loss. PTS: 1 REF: p. 16-4 4. The gain or loss on the disposition of a sole proprietorship is capital gain or loss. ANS: F The gain or loss is determined with respect to each asset of the business. The character of the gain or loss depends on the character of each individual asset. Typically, the seller has both ordinary and cap- ital gains and losses. PTS: 1 REF: p. 16-4 5. Casualties and thefts involving personal-use property are treated as capital gains and losses if the gains exceed the losses from such events for a particular year. ANS: T If there is a net loss for a year, then that amount is deductible as an ordinary loss, but only to the extent it exceeds 10 percent of A.G.I, and is an itemized deduction. A net gain results in each gain or loss be- ing treated as a capital gain or loss. PTS: 1 REF: Example 3, pp. 16-7 and 16-8, and §§ 165(c) and (h) 6. For a capital gain or loss to be considered long-term, the asset must generally be held more than one year.
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ANS: T A holding period of exactly one year is short-term. PTS: 1 REF: Examples 5 through 7, pp. 16-8 and 16-9, and § 1222 7. Both the date of acquisition and the date of sale are included in determining the holding period for a capital asset. ANS: F The date of sale is included in the holding period, but the date of acquisition is not. PTS: 1 REF: Examples 5 through 7, pp. 16-8 through 16-10, and § 1222 8. The holding period of like-kind property acquired in a qualifying exchange begins on the date of the exchange. ANS: F Section 1223(1) provides a carryover holding period if there is a substituted basis (i.e., the basis of property is found with reference to the basis of other property given up by the taxpayer). PTS:
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This note was uploaded on 04/06/2011 for the course ECON 3332 taught by Professor Craig during the Spring '11 term at Rensselaer Polytechnic Institute.

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Chapter 16 - CHAPTER 16-PROPERTY TRANSACTIONS: CAPITAL...

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