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ch14 - 1 The tax law does not require that capital gains...

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1. The tax law does not require that capital gains and losses be separated from other types of gains and losses because there is no alternative tax calculation when taxable income includes net long-term capital gain. a. True *b. False 2. The tax law does not require that capital gains and losses be separated from other types of gains and losses because there are no limitations on the deduction of net capital losses. a. True *b. False 3. If a capital asset is sold at a gain, the holding period is not important. a. True *b. False 4. An accrual basis taxpayer accepts a note receivable from a retail customer with a weak credit rating. The taxpayer immediately sells the note to a bank for less than the note’s stated value. The taxpayer has a capital loss. a. True *b. False 5. A business taxpayer sells depreciable business property with an adjusted basis of $40,000 for $32,000. The taxpayer held the property for more than a year. The taxpayer has an $8,000 long-term capital loss. a. True *b. False 6. An individual taxpayer received a valuable antique vase from his aunt, a famous collector. The collector purchased the vase. After the taxpayer held the vase for two years, he sold it for a $400,000 gain. The gain is a long-term capital gain. *a. True b. False 7. Even though the Code defines what a capital asset is, often the courts still have to help determine what is and what is not a capital asset.
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a. True *b. False 8. Section 1237 allows certain professional real estate sales persons capital gain treatment if they engage only in limited sales activities. a. True *b. False 9. Real property subdivided for resale into lots, even when substantial physical improvements have been made to the property, always causes the gain from sale of the lots to be treated as capital gain. a. True *b. False 10. A security that is a capital asset becomes worthless. The loss is deemed to have occurred on the day that the security was declared worthless. a. True *b. False 11. Original issue discount is amortized over the life of the bond. *a. True b. False 12. As a general rule, the sale or exchange of an option to buy or sell property results in capital gain or loss if the property subject to the option is (or would be) a capital asset in the hands of the option holder. *a. True b. False 13. The only things that the grantee of an option may do with an option are to exercise it or sell or to exchange it. a. True *b. False 14. When a patent is sold, a common form of payment received by the transferor is a periodic payment. *a. True b. False
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15. A franchisor licenses its mode of business operation to a franchisee. *a. True b. False 16. A lease cancellation payment received by a lessee is generally treated as an exchange because the lease extinguished is usually a capital asset. *a. True b. False 17. Lease cancellation payments received by a lessor are always ordinary income because they are considered to be in lieu of rental payments.
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