Idv. Fed Taxation FINAL EXAM

Sara receives 300 shares of restricted stock on August 18, 2023, when the share price is $50 per share. The stock is not subject to forfeiture and is transferable by Sara. On December 3, 2023, the shares have a FMV of $53 per share. Sara holds the shares until April 9, 2024, when she sells them at $56 per share. How much will Sara recognize in short-term capital gain in 2024?

$1800

300 x $50= $15,000

300 x $56 - $15,000 = $1800

Chris, age 5, has $3,900 of interest income and no earned income in 2024. Assuming the current applicable standard deduction is $1,300, how much of Chris’s income will be subject to the Kiddie Tax?

$1,300 (standard deduction)

A 22-year-old full-time student earned $11,000 in salary and received $9,000 in interest from corporate bonds. The bonds were a gift from the student’s grandparents. The student’s parents pay more than half of the student’s support, including $25,000 in tuition. Which of the following statements is correct regarding the student’s current-year income tax?

A portion of the student’s interest income and no other income will be subject to the Kiddie Tax.

Amy decides to donate land that she has held for investment for 4 years to a qualified public nonprofit school. Amy’s adjusted gross income (AGI) is $80,000. On the day of donation, the FMV of the land is $32,000. Amy purchased the land 4 years ago for $19,000. What amount is Amy allowed as a deductible charitable contribution?

$24,000

($80,000 × 30%)

Dan donates a painting to a public charity, which then sells the painting and uses the proceeds for its charitable purpose. The property is classified as capital gain property. Dan’s basis in the painting is $50,000 and the FMV is $250,000. Dan’s AGI is $120,000. What is Dan’s allowed charitable contribution deduction for the painting?

$50,000

Erica is a 12-year-old dependent child who has received $3,500 of dividends on common stock that she received as a gift from her grandparents. How much of Erica’s unearned income will be subject to the Kiddie Tax?

$900

($3500 - $2600)

$2600 is the limit of what can be charged at the child’s tax rate, so $900 must be charged at her parent’s rate

During the current year, a corporation retired obsolete equipment purchased ten years ago having an adjusted basis of $30,000 and sold it as scrap for $1,000. The corporation also had $50,000 taxable income from operations. The taxable income of the corporation was

$21,000

($50,000 - $29,000)

Mary Brown purchased an apartment building on January 1, 2014, for $200,000. The building was depreciated using the straight-line method. On December 31, 2024, the building was sold for $210,000 when the asset basis net of accumulated depreciation was $160,000. On her 2024 tax return, Brown should report

Section 1231 gain of $10,000 and Sec. 1250 unrecaptured gain of $40,000.

Four years ago, a self-employed taxpayer purchased office furniture for $30,000. During the current tax year, the taxpayer sold the furniture for $37,000. At the time of the sale, the taxpayer’s depreciation deductions totaled $20,700. What part of the gain is taxed as long-term capital gain?

$7000

($37,000 - $30,000)

Platt owns land that is operated as a parking lot. A shed was erected on the lot for the related transactions with customers. With regard to capital assets and Sec. 1231 assets, how should these assets be classified?

Land: Sec 1231

Shed: Sec 1231

Which of the following items qualifies for treatment under Sec. 1231 (Property Used in the Trade or Business and Involuntary Conversions)?

Computer used in the business, held for 4 years.

A taxpayer sold for $200,000 equipment that had an adjusted basis of $180,000. Through the date of the sale, the taxpayer had deducted $30,000 of depreciation. Of this amount, $17,000 was in excess of straight-line depreciation. What amount of gain would be recaptured under Section 1245, Gain from Dispositions of Certain Depreciable Property?

$20,000

(200,000 - 180,000)

Iris King bought a diamond necklace for her own use at a cost of $10,000 ten years ago. During the current year, when the fair market value was $12,000, Iris gave this necklace to her daughter, Ruth. No gift tax was due. This diamond necklace is a

Capital asset

Which of the following dispositions of depreciable property would trigger recapture?

Installment sale.

Decker sold equipment for $200,000. The equipment was purchased for $160,000 and had accumulated depreciation of $60,000. What amount is reported as ordinary income under Sec. 1245?

$60,000

Lobster, Inc., incurs the following losses on disposition of long-term business assets during the year:

Loss on the abandonment of office equipment	$ 25,000
Loss on the sale of a building (straight-line
depreciation taken in prior years of $200,000)	250,000
Loss on the sale of delivery trucks	15,000

What is the amount and character of the losses to be reported on Lobster’s tax return?

$290,000 Sec. 1231 loss.

A sole proprietor of a nutrition supplement store sold a truck for $15,000. Three years ago, the truck cost $30,000, and $21,360 depreciation was taken. What is the appropriate classification of the $6,360 gain for tax purposes?

ordinary gain

An individual sold equipment used in a trade or business for $60,000. The equipment was acquired 3 years ago for $50,000, and $25,000 of allowable depreciation was claimed. How should the sale be reported on the income tax return?

Ordinary income of $25,000 and Sec. 1231 (Property Used in the Trade or Business and Involuntary Conversions) gain of $10,000.

(60,000 - 50,000 = 10,000)

A sole proprietor owned an office building with a cost of $100,000 and accumulated depreciation of $28,000 using straight-line depreciation under the Modified Accelerated Cost Recovery System. If the company sold the building for $110,000, what is the unrecaptured Code Sec. 1250 gain from this transaction?

$28,000

A taxpayer purchased a forklift for use in the taxpayer’s business for $20,000 on January 1 of the current year. The taxpayer sold the forklift for $22,000 on June 1 of the current year. What is the taxpayer’s Sec. 1231 gain as a result of the sale?

$0

In the current year, Fitz, a single taxpayer, sustained a $48,000 loss on Sec. 1244 stock in JJJ Corp., a qualifying small business corporation, and a $20,000 loss on Sec. 1244 stock in MMM Corp., another qualifying small business corporation. What is the maximum amount of loss that Fitz can deduct for the current year?

$50,000 ordinary loss and $18,000 capital loss.

Bank Corp.’s voting stock is owned by the following individuals: Farber, 25%; Farber’s mother, 15%; Farber’s father, 40%; and Grosset, an unrelated person, 20%. Farber’s sister sold equipment to Bank at a loss. For the purposes of determining whether the sister’s loss is deductible under the related party rules, what percentage of Bank’s stock, if any, does the sister constructively own?

80%

(25% + 15% + 40%)

Mitchell sold his Saratoga Bombers Corporation stock to his brother Sheldon for $7,000. Mitchell’s cost basis in the stock was $10,000. Sheldon later sold this stock to Sonia, an unrelated party, for $10,500. What is Sheldon’s recognized gain?

$500

($10,500 - $10,000)

Senior sold Junior (his son) a rental residence with an adjusted basis of $60,000 for $40,000. Junior rented the house to an unrelated tenant for 2 years, properly claiming $8,000 in depreciation on the house. He then sold it for $42,000. As a result of the sale, Junior will

report no gain or loss

Hull and Black are partners in a partnership. Hull has a 60% interest in the partnership’s capital and profits. In Year 1, Hull purchased stock for $20,000 and decided to sell the stock to the partnership at the fair market value of $8,000 in Year 5. What is Hull’s recognized long-term capital loss in Year 5?

$0