Problem 1: Manuel exchanges a rental house at the beach with an adjusted basis of $150,000 and a fair market value of $125,000 for a rental house at the mountains with a fair market value of $100,000 and cash of $25,000. What is the recognized gain or loss?
a. $0.
b. $100,000.
c. $25,000.
d. ($25,000).
e. None of the above.
Problem 2: Boston exchanges a machine used in his trade or business for another machine. In addition, he gives shares of Intel stock which have a fair market value of $27,000 and a basis of $13,000. The old machine has an adjusted basis of $30,000 and the new machine has a fair market value of $80,000. What is the recognized gain or loss and the basis of the new machine?
a. $14,000 and $57,000.
b. $23,000 and $57,000.
c. $14,000 and $80,000.
d. $23,000 and $80,000.
e. None of the above.
Problem 3: On August 10, 2003, an investor purchased 1,000 shares of Mauve Corporation for $30,000. On January 2, 2004, the stock became worthless. What is the recognized gain or loss and how is it classified?
a. $3,000 STCL.
b. $30,000 STCL.
c. $3,000 LTCL.
d. $30,000 LTCL.
e. None of the above.
Problem 4: Rica purchased for $4,500 a $5,000 bond when it was issued two years ago. Rica amortized $250 of the original issue discount and then sold the bond for $4,875. Which of the following statements is correct?
a. Rica has $125 of long-term capital gain.
b. Rica has $250 of long-term capital gain.
c. Rica has $375 of long-term capital gain.
d. Rica has $125 long-term capital loss.
e. None of the above.
Problem 5: On July 1, 2004, Marco purchased an option to buy 1,000 shares of Surfing, Inc. at $40 per share. He purchased the option for $3,000. It was to remain in effect for five months. The market experienced a decline during the latter part of the year, so Marco decided to let the option lapse as of December 1, 2004. On his 2004 income tax return, what should Marco report?
a. A $3,000 long-term capital loss.
b. A $3,000 short-term capital loss.
c. A $3,000 § 1231 loss.
d. A $3,000 ordinary loss.
e. None of the above.