1. Which of the following statements is most likely TRUE for Jared (a typical individual taxpayer in the 35% tax bracket)?
a. Jared usually prefers long-term capital gains to ordinary income
b. Jared usually prefers capital losses to ordinary losses
c. Jared usually prefers a $1,000 deduction to a $700 credit
d. Both "a" and "b" are correct
2. Gabriel, who owns and operates an ICE CREAM SHOP as a sole proprietor, has the following property:
· STOCKS held for Gabriel's investment
· Elaborate ice cream making EQUIPMENT that was inherited from Tanzina (Gabriel's grandmother) (it is used exclusively in the ICE CREAM SHOP)
· CHAIRS that are used exclusively the ICE CREAM SHOP
· a COMPUTER used exclusively in the ICE CREAM SHOP
Considering the above items, which option below lists the capital asset(s) under Section 1221?
a. Only the STOCKS
b. Only the STOCKS & CHAIRS
c. Only the EQUIPMENT, CHAIRS & COMPUTER
d. Each of the above assets is a capital asset under Section 1221
3. Jeff recently purchased a piece of land, a building and a truck for a lump sum of $500,000. The fair market value of the land was $200,000, the fair market value of the building was $350,000, and the fair market value of the truck was $50,000. What is Jeff's basis in the TRUCK?
a. $166,667
b. $50,000
c. $41,667
d. $0
4. On September 1, 2005, Pedro paid $550 for 10 shares of TXX-5761 Inc. common stock. On August 13, 2013, Pedro received a nontaxable 10% common stock dividend (i.e., 1 additional share of identical common stock). On August 13, 2013, TXX-5761 Inc. the common stock was trading on the market for $70 a share. On November 15, 2013, Pedro sold the 1 share he received on August 13, 2013 to Wilny. What is the basis of the 1 share Pedro sold to Wilny?
a. $70
b. $55
c. $50
d. $0
5. Refer to the facts stated in the prior question. The gain or loss resulting from the November 15, 2013 sale to Wilny will most likely be:
a. Long-term
b. Short-term
c. Both short-term and long-term
d. Neither short-term nor long-term
6. In 2013, Tanzina sold a piece of equipment from Tanzina's business for $400,000. The equipment was purchased in 2009 for $240,000. It had a useful life of five years and was depreciated on a straight-line basis. Assume total of $168,000 depreciation was taken (prior to the sale). What is Tanzina's recognized gain on the sale?
a. $160,000
b. $168,000
c. $328,000
d. $400,000
7. Refer to the facts stated in the prior question. What amount of the gain will be recaptured at Tanzina's ordinary income rate?
a. $160,000
b. $168,000
c. $328,000
d. $400,000
8. Refer to the facts stated in the prior two questions. What amount of the gain will be treated as Section 1231 gain and (possibly) taxed at the long-term capital gain rate?
a. $160,000
b. $168,000
c. $328,000
d. $400,000
9. Which of the following is most likely Section 1245 property (assume that each item has been held long-term and is used in a trade or business)?
a. Inventory
b. Business Equipment
c. Office Building
d. Land
10. Which of the following is most likely Section 1231 property (assume that each item has been held long-term and is used in a trade or business)?
a. Section 1250 property
b. Section 1245 property
c. Land
d. Each of the above items is Section 1231 property
11. Which of the following would MOST LIKELY require an adjustment for the alternative minimum tax?
a. A deduction for state income taxes
b. A gambling loss
c. A charitable contribution deduction
d. Each of the above items requires an adjustment for the alternative minimum tax
12. Pedro was at risk for $25,000 in Partnership X and $30,000 in Partnership Z on January 1, 2013. Both partnerships are passive activities to Pedro (these are Pedro's only passive activities). Pedro's share of net income from Partnership X during 2013 is $20,000. Pedro's share of losses from Partnership Z during 2013 is $60,000. How much is Pedro at risk for Partnership X on January 1, 2014?
a. $0
b. $20,000
c. $25,000
d. $45,000
13. Refer to the facts in the previous question. How much is Pedro at risk for Partnership Z on January 1, 2014
a. $0
b. $20,000
c. $30,000
d. $60,000
14. Refer to the facts in the previous questions. What is Pedro's carryover under the at-risk rules for Partnership Z in 2013?
a. $0
b. $10,000
c. $20,000
d. $30,000
15. Refer to the facts in the previous question. What is Pedro's deductible loss for Partnership Z in 2013?
a. $0
b. $20,000
c. $30,000
d. $60,000
16. Refer to the facts in the previous question. What is Pedro's suspended loss under the passive loss rules for Partnership Z in 2013?
a. $0
b. $10,000
c. $20,000
d. $50,000
17. In 2013, Rocio invested in the LASHECA Limited Partnership ("LASHECA L.P.") by paying $50,000 cash and contributing additional assets worth $40,000 (and having a basis equal to $20,000 on the date of the contribution). What amount did Rocio have at risk in LASHECA L.P. as of January 1, 2014, if LASHECA L.P. broke even in 2013 (i.e., if LASHECA L.P. had no income or loss in 2013)?
a. $50,000
b. $70,000
c. $90,000
d. $110,000
18. Refer to the facts stated in the prior question. But, for this question, assume that LASHECA L.P. allocated to Rocio net income of $20,000 from operations in 2013. What amount does Rocio have at risk in LASHECA L.P. as of January 1, 2014?
a. $50,000
b. $70,000
c. $90,000
d. $110,000
19. In 2013, Kristen and Jared (who file a joint return) had an interest expense of $10,000 on a loan that was used to purchase a variety of stock and bonds (all producing taxable income). Assume further that, in 2013, Kristen and Jared had net investment income of $6,000. Assume they itemize deductions, what is their maximum interest expense deduction in 2013?
a. $10,000
b. $6,000
c. $4,000
d. $0
20. Assume that Johnathan and Janice file a joint return and have the following items for 2013:
Taxable income: $75,000
Positive adjustments: $25,000
Preferences: $50,000
Regular tax ability: $10,608
What was their 2013 AMT?
a. $0
b. $7,384
c. $10,608
d. $17,992
21. Assume that a couple that filed a joint return had 2013 AMTI of $400,000. What was the amount of their actual 2013 exemption for the AMT?
a. $80,800
b. $19,275
c. $7,800 (i.e., $3,900 x 2)
d. $0
22. Moses is negotiating to buy land from Tamella. What will Moses's basis be in the land, if Moses gives Tamella $100,000 and Moses assumes Tamella's mortgage on the land of $80,000?
a. $20,000
b. $80,000
c. $100,000
d. $180,000
23. Which of the following is LEAST likely to qualify as a like-kind exchange under Section 1031 (assume all of the assets are used for business)?
a. Improved real estate for unimproved real estate
b. Office building for a warehouse
c. Office furniture for office equipment
d. Unimproved real estate for computer printer
24. Gabriel exchanges undeveloped real estate for developed real estate on October 30, 2013. On October 30, 2013, the fair market value of each property is $600,000. Gabriel had purchased the undeveloped real estate on February 14, 2005, for $400,000. Both properties are considered investment property for Gabriel. Which of the following is FALSE?
a. Gabriel will realize a gain of $200,000 from the October 30, 2013 transaction
b. Gabriel will recognize a gain of $200,000 from the October 30, 2013 transaction
c. Gabriel's basis in the developed real estate is $400,000
d. If Gabriel sells the developed real estate in June of 2014 for a gain, the gain will most likely be treated as a long-term gain
25. In October 2012, Melissa purchased a playground set at a garage sale for $100. Melissa is not in the business of buying and selling anything. Melissa researched the playground set online and discovered it was worth $1,000. In December 2013, Melissa sold the playground set through an auction website for that amount (i.e., $1,000). Which of the following is TRUE considering these transactions?
a. Melissa does not have any income
b. Had Melissa sold the playground set for $50, Melissa could have deducted a $50 ordinary loss
c. Melissa has a $900 long-term capital gain
d. Melissa has a $900 short-term capital gain