True/False (2 pts. each) Indicate A for True and B for False on the Scantron.

1. ____When a taxpayer sells part of his/her holdings in a stock which has been purchased in different lots at different prices, he/she should employ the FIFO assumption for determining the basis of shares sold.

2. ____ Arnold received stock as a gift three years ago. At the time of the gift, the donors basis in the stock was $6,000 and the fair market value was $4,000. Arnold sells the stock this year for $5,000. Arnold has a $1,000 gain on the sale.

3.____ Patricia, an unmarried taxpayer who is head of household, has adjusted gross income of $44,000 and incurs $4,000 of child care expenses for part-time care of her 8 year old son, Joshua. Patricia can shelter up to $5,000 (or her expenses if less) in an employer provided childcare reimbursement program or take the Child and Dependent Care Credit. Patricia would receive greater tax savings from taking the credit than from participating in the employer reimbursement plan.

4. ____ Gains are recognized on sales of property used for personal purposes (unless specifically excludable) but losses are disallowed.

5. ____ A taxpayer has a tax liability before credits of $300. Given the taxpayers income level and other circumstances, the tentative calculated Earned Income Credit is $500. Because the taxpayers tax liability is only $300, the taxpayer only will be able to use $300 of the credit.

6. ____ Sam has a $10,000 Sec. 1231 gain in the current year. Sam had $8,000 of Sec. 1231 losses during the past two years. As a result of these facts, Sam has $10,000 of ordinary income in the current year.

7. ____ Bill, a single taxpayer, sells his principal residence in the current year for $300,000. He bought the residence 20 years ago for $105,000. In order to defer all of the tax on the gain, Bill must purchase a new residence costing at least $300,000.

8. ____ Sarahs business property was condemned by the county for highway construction. The county awarded Sarah $110,000 for the property. Sarahs basis in the property was $75,000. Sarah relocated to another locale and purchased a qualified replacement property for $95,000. Sarahs recognized gain on the condemnation is $15,000 and she has a basis of $75,000 in the replacement property.

9. ____ Bill and Sharice Edwards file a married joint return and have AGI of $208,000. They provide over half the support for sons Ted (14 years old) and Zach (19 years old and a full-time college student). They also provide over half of the support for Bills niece, Barbara, who is 21 and a full-time college student. The maximum amount of child and/or dependent credits they can receive is $2,000.

10. ____ Sybil sold her personal automobile for a loss of $3,000 and her personal stamp collection for a gain of $700. Sybil will report a gain of $700 on her tax return as a result of these transactions.

11. ____ Franchise fees typically generate ordinary income to the franchisor (check text).

12. ____Tom converts his personal auto to business use in the current year. He purchased the auto two years ago for $27,000. On the date of conversion, the fair market value of the auto is $18,000. If Tom uses the actual expense method for vehicles, his basis for depreciation is $18,000.

13. ____ After accumulating $9,000 of depreciation on the auto referenced in the question directly above, Tom sells the auto for $10,000. Tom has a realized and recognized gain of $1,000.

14. ____Clyde made five sales of investment securities during the current year. Two sales produced short-term gains of $2,000 and $6,000 respectively. Three sales were long-term and produced a loss of $15,000, a loss of $5,000 and a gain of $16,000 respectively. Clyde has a net short-term capital gain and will receive no preferential tax rate on the overall gain.

15. ____A taxpayer in the 35% marginal bracket purchases rental real estate during 2010 at a cost of $200,000. After taking depreciation of $60,000, the taxpayer sells the property during 2019 for $240,000. The taxpayer has a gain or $100,000. $60,000 of this gain will be taxed at a maximum rate of 25% and $40,000 of the gain will be taxed at a maximum rate of 15%.

16. ____A taxpayer is required to own and occupy the principal residence for two out of the last five years in order to qualify for the exclusion on the sale of a personal residence.

17.____ Jake, a US citizen, has foreign income of $20,000 and paid a tax of $2,000 on this income. His income from all sources (including foreign) is $200,000 and his total US tax is on that income is $34,000. His foreign tax credit is $3,400.

18. ____ Tom sells business machinery for a $4,500 loss. If he has no capital gains, he will only be allowed to deduct $3,000 of this loss in the current year.

19. ____ Fred and Martha, husband and wife, purchased land in joint tenancy for $200,000 in 2009. Fred died in 2019 and the land was valued at $300,000 at the time of his death. Marthas current basis in the land is $300,000.

20. ____ Assume the same facts as Question 19 except that Fred is Marthas brother and Fred purchased the property completely with his own funds in 2009 but placed Martha on the property as a joint tenant with right of survivorship as a way of easing passage of title after his death. Under those circumstances, Marthas current basis in the land would be $300,000.

21. ____ Ted inherits stock from his father. The father paid $60,000 for the stock but it was worth $120,000 at the date of his death. Ten months after inheriting the property, Ted sells it for $125,000. Ted has a long-term capital gain of $5,000 on the sale.

22. ____ Clawson Corporation generates a $10,000 long-term capital gain in the current year and a $20,000 long-term capital loss. Clawson may deduct only $3,000 of the net long-term capital loss in the current year and must carry forward the remaining $7,000 of long-term capital loss.

23. ____ Ellen is in the 32% marginal tax bracket. She sold machinery used in her business this year for $3,000. She bought the machinery six years ago for $9,000 and had made a Section 179 election to expense the machinery at the time. Janes tax on this sale is $450.

24. ____ Walter sold a number of assets during the year. One sale generated an ordinary loss of $2,000, another a long-term capital gain of $5,000, and another a short-term capital loss of $2,000. As a result of these transactions, Walter has a net long-term capital gain of $3,000 and an ordinary loss of $2,000.

25. ____ Julia has a champion breeding horse that she sells in the current year for $20,000 after owning the horse for 3 years and depreciating $11,000 of its original cost of $16,000. Julia has a capital (1231) gain of $4,000 and an ordinary gain of $11,000.

Multiple Choice (Place the best answer on the Scantron form)

26. Assume a taxpayer is in the 33% marginal tax bracket. Which of the following will produce a gain that will be taxed at preferential capital gains rates (if less than the taxpayers marginal tax rate)?

a. 1,000 shares of CTX Corporation held for 300 days.

b. Sale of an apartment building purchased in 2005 at a cost of $200,000. The taxpayer claimed $80,000 of depreciation and sold the building for $240,000.

c. Sale of machinery for $3,000. The machinery was purchased for $10,000 and was fully depreciated.

d. Sale of twenty single family houses by a homebuilder and developer.

e. none of the above

27. Lem Lumberjack sells 100 shares (basis of $5,000) of Redwood Corporation common stock on March 8, 2019, for $4,000. On March 29, 2019, Lem purchases 1,000 shares of Redwood Corporation common stock for $4,200. Lems recognized loss on the sale is (check wash sale rules):

a. $1,000

b. $500

c. $1,500

d. $0

28. Which of the following individuals may have some exposure to the penalty for underpayment of estimated taxes?

a. Cara who owes $3,000 with the return on a total tax liability of $15,000 for the current year. Last year her tax liability was $12,000. Cara is not a high-income taxpayer.

b. Richard who owes $900 with the return on a total tax liability of $11,000 for the current year. Last year his total tax liability was $10,500. Richard is not a high-income taxpayer.

c. Lilly who owed $4,000 with the return on a total tax liability of $30,000. Last years Lillys tax liability was $26,000. Lilly is a high-income taxpayer.

d. none of the above

29. Maria, age 30, is a part-time graduate student who pays $7,000 in tuition in the current year. Her AGI is $62,000. Pick the correct statement about Marias eligible education credit.

a. Maria is entitled to an American Opportunity Credit of $2,500.

b. Maria is entitled to a reduced Lifetime Learning Credit of less than $1,400.

c. Maria is entitled to a Lifetime Learning Credit of $1,400.

d. Maria is not entitled to any education tax credits.

30. Brian Brewster sold real estate to a buyer who paid him $400,000 cash and assumed an existing mortgage of $150,000. The property had cost $250,000 and he had made improvements of $50,000. Depreciation of $100,000 has been claimed and selling expenses were $20,000. What is the amount of gain?

a. $100,000

b. $200,000

c. $250,000

d. $280,000

e. $330,000

31. Doug Doolittle, a landlord, wishes to receive 1031 treatment on an exchange of an apartment building. Doug transfers the real property with a basis of $300,000 and a value of $450,000 to a qualified financial intermediary on 3/15/2019. Which of the following describes the correct procedure to receive like-kind treatment for any qualifying property received in the exchange?

a. Doug must take possession of the qualified replacement property within two years after the close of the tax year of exchange.

b. If the intermediary sells Dougs property and Doug identifies qualified replacement property within the allowable time period, Doug may request the intermediary to distribute the sales proceeds to him and Doug may purchase replacement property on his own.

c. Doug must identify and take possession of qualified replacement property within three years of the date of the transfer of the property to the intermediary.

d. Doug must identify replacement property (or properties) within 45 days of transferring his property and must take possession of the replacement property within 180 days of the exchange.

32. Which of the following tax credits may be at least partially refundable?

a. Lifetime Learning Credit

b. Child Credit

c. Child and Dependent Care Credit

d. Dependent Credit

33. Which of the following is a capital asset?

a. Property held primarily for sale to customers

b. Accounts or notes receivable acquired in the ordinary course of business

c. Machinery and equipment used in a trade or business

d. Temporary investment of idle business cash in marketable corporate securities

e. Real property used in a trade or business

34. Which of the following is not Section 1245 property?

a. Intangible personalty (property not real estate)

b. Machinery used in a business

c. An office building

d. Breeding livestock

35. Allison, a landlord, has her apartment building condemned by the state for purposes of building a road through the location of the building. Allison purchased the property five years ago for $400,000 and depreciated $40,000 of its cost. Because the property in the area had declined in value over that time period, that state gave Allison condemnation proceeds of only $350,000. Within the same year, she bought a replacement apartment building for $350,000. Select the false statement from the statements below.

a. Allison has a realized and recognized loss of $10,000.

b. Allison has a realized loss of $10,000 but the loss is deferred and not recognized. She has a $360,000 basis in the apartment building

c. Allisons basis in the replacement apartment building is $350,000

Print this sheet of paper, sign your name below (legibly), and hand in this sheet of paper with the Scantron.

NAME________________________________________________________________________

(10 points) Cooper and Dane exchanged properties with each other. Cooper exchanged a commercial building and land with a basis of $200,000 and a fair market value of $320,000. The property exchanged by Cooper was also subject to a $180,000 liability that was assumed by Dane in the exchange. In addition to the liability assumption, Dane gave Cooper a smaller commercial building in a different location. That building had a fair market value of $250,000 and an adjusted basis to Dane of $190,000. The property exchanged by Dane was subject to a $140,000 liability that was assumed by Cooper in the exchange. To even up the exchange, Dane also gave Cooper $30,000 in cash.

Show your work below the questions. Provide labeled and sufficiently described answers to the questions.

1) What is Coopers realized gain or loss?

2) What is Danes realized gain or loss?

3) What is Coopers recognized gain or loss?

4) What is Danes recognized gain or loss?

5) What is the basis of the like-kind property acquired by Cooper?

6) What is the basis of the like-kind property acquired by Dane?