1. Teresa purchased a necklace for $100 in 1964. In 2014, Teresa gave the necklace to her granddaughter, Lindsey. At the time of the gift, the necklace had an appraised value of $850. In 2016, Lindsey sold the necklace for $1,200. What is the amount and character of Lindsey's gain from this sale?

$350 ordinary gain.

$350 long-term capital gain.

$1,100 ordinary gain.

$1,100 long-term capital gain

2. To what extent is debt cancelled in a personal bankruptcy taxable as cancellation-of-debt income?

All cancelled debt, except for that related to real property, is taxable as cancellation-of-debt income.  

Unsecured debt that is cancelled in bankruptcy is taxable as income.  

Only secured debt in excess of the fair market value of the collateral is taxable as income.  

Debt cancelled in a bankruptcy proceeding under federal law is not taxable as cancellation-of-debt income