Question 1. What is the purpose behind congress' taxing capital gains at a rate lower than ordinary income? Will this lower tax rate help to stimulate investment spending and the economy?
Question 2. What does "recapture" refer to? What is the effect of recapture? How do you treat recapture? At what rate would you tax the recapture (i.e., ordinary or capital gains)? Why?
Quiz
1. Question : (TCO 6) Recognized gains and losses must be properly classified. Proper classification depends upon three characteristics. Which of the following is NOT one of those three characteristics?
2. Question : (TCO 6) Which of the following events causes the purchaser of an option to add the cost of the option to the basis of the property to which the option relates?
3. Question : (TCO 6) On August 10, 2010, Black, Inc. acquired an office building as a result of a like-kind exchange. Black had given up a factory building that it had owned for 18 months as part of the like-kind exchange. Which of the statements below is correct?
4. Question : (TCO 6) Which of the livestock below is a § 1231 asset?
5. Question : (TCO 11) Sylvia purchased for $680 a $2,000 bond when it was issued two years ago. Sylvia amortized $200 of the original issue discount, and then sold the bond for $1,800. Which of the following statements is correct?
6. Question : (TCO 11) On July 1, 2010, Brandon purchased an option to buy 1,000 shares of General, Inc. at $30 per share. He purchased the option for $2,000. It was to remain in effect for five months. The market experienced a decline during the latter part of the year, so Brandon decided to let the option lapse as of December 1, 2010. On his 2010 tax return, what should Brandon report?
7. Question : (TCO 11) Tan, Inc. has a 2010 $50,000 long-term capital gain included in its $185,000 taxable income. Which of the following is correct?
8. Question : (TCO 11) Vertigo, Inc., has a 2010 net § 1231 loss of $45,000 and had a $32,000 net § 1231 gain in 2009. For 2010, Vertigo's net §1231 loss is treated as:
9. Question : (TCO 11) Which of the following creates potential § 1245 depreciation recapture?
10. Question : (TCO 11) Alice acquired a $100,000 business machine and deducted $70,000 depreciation before selling it for $80,000. What is the 1245 gain and the 1231 gain?