Buckwold12e_ch08_Review

Buckwold12e_ch08_Review - CHAPTER 8 GAINS AND LOSSES ON THE...

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Unformatted text preview: CHAPTER 8 GAINS AND LOSSES ON THE DISPOSITION OF CAPITAL PROPERTYCAPITAL GAINS Review Questions 1. A capital gain or capital loss is the gain or loss realized from the disposition of capital property. What is meant by the term capital property, and how is it different from other types of property? 2. Is it necessary for property to provide a long-term benefit to its owners in order for the gain or loss on sale to be considered a capital gain or capital loss? 3. When it is unclear whether a gain or loss on a sale of property is of a capital nature, what factors are considered when judging the transaction? 4. An investor acquired a residential high-rise apartment as an investment. The property has now been owned for 11 years and annually has provided reasonable net rental income. This net rental income has been reinvested in other types of properties as well as in improvements to the apartment building. The owner is considering either selling the property to another investor or dividing the property into separate condominium units that will be marketed to existing tenants and to the public. Explain how a gain on sale will be treated for tax purposes under each alternative. 5. Distinguish among financial property, personal-use property, and listed personal property. Which of these three categories is (are) subject to capital gains treatment? 6. Distinguish between a capital gain and a taxable capital gain and between a capital loss and an allowable capital loss. 7. Explain why the tax treatment of capital gains is often described as preferential, while the treatment of capital losses is often considered unfair. 8. A capital gain or loss can be recognized for tax purposes only when capital property is sold. Is this statement true? Explain. 9. A corporation acquires a licence that permits it to manufacture a patented product for 10 years in exchange for the payment of a royalty. Describe the tax treatment that will occur if the taxpayer sells the licence for more than its cost or less than its cost to another party before the 10-year term expires. Would the tax treatment be the same if the licence had an unlimited life? 10. What advantage can a taxpayer achieve by incurring a capital gain on property and permitting the purchaser to pay for the property over a number of years? 11. Because of the tax treatment, an investment in shares of a small business corporation may present less risk than an investment in shares of a public corporation. Explain why. 12. What difference does it make when the sole shareholder of a corporation provides $10,000 of additional capital to the corporation as a loan (shareholders loan), rather than in return for additional share capital?...
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This note was uploaded on 07/03/2011 for the course BUS 3120 taught by Professor Weedon during the Spring '10 term at University of Winnipeg.

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Buckwold12e_ch08_Review - CHAPTER 8 GAINS AND LOSSES ON THE...

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