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Homework answers / question archive / ACC 307 Homework Chapter 14 1)An individual taxpayer sells some used assets at a garage sale

ACC 307 Homework Chapter 14 1)An individual taxpayer sells some used assets at a garage sale


ACC 307

Homework Chapter 14

1)An individual taxpayer sells some used assets at a garage sale. Why are none of the proceeds taxable in most situations?

2. Hubert purchases all of the rights in a patent from the inventor who developed the patented product. After holding the patent for two years, Hubert sells all of the rights in the patent for a substantial gain. What issues does Hubert face if he wants to treat the gain as a long-term capital gain?

3. Siva purchased corporate stock for $20,000 on April 10, 2010. On July 14, 2012, when the stock was worth $12,000, he gave it to his son, Mithra. What has to happen to the value of the property while Mithra holds it if Mithra is to tack Siva’s holding period on to his own holding period?

4. Ian sells his antique golf club collection at a profit. He had acquired all of the clubs for his personal pleasure and sold all of them for more than he paid for them. What is the tax status of the clubs, and is his gain a 28% gain?

5. Faith Godwin is a dealer in securities. She has spotted a fast-rising company and would like to buy and hold its stock for investment.  The stock is currently selling for $2 per share, and Faith thinks it will climb to $40 a share within two years. Faith’s coworkers have told her that there is “no way” she can get long-term capital gain treatment when she purchases stock because she is a securities dealer. Faith has asked you to calculate her potential gain and tell her whether her coworkers are right. Draft a letter to Faith responding to her request. Her address is 200 Catamon Drive, Great Falls, MT 59406.

6. Maria meets all of the requirements of §1237 (subdivided realty). In 2012, she begins selling lots and sells four separate lots for four different purchasers. She also sells two contiguous lots to another purchaser. The sales price of each lot is $30,000. Maria’s basis for each lot is $15,000. Selling expenses are $500 per lot.

a. What are the realized and recognized gains?

b. Explain the nature of the gain (i.e., ordinary income or capital gain).

c. Would your answers change if, instead, the lots sold to the fifth purchaser were not contiguous? If so, how?

7. For 2012, Wilma has properly determined taxable income of $36,000, including $3,000 of unrecaptured § 1250 gain and $8,200 of 0 %/15% gain. Wilma qualifies for head-of-household filing status. Compute Wilma’s tax liability and the tax saving from the alternative tax on net capital gain.

8.  Keshara has the following net § 1231 result for each of the years shown. What would be the nature of the net gains in 2011 and 2012?

Tax Year                                  Net § 1231 Loss                                   Net § 1231 Gain

2007                                        $16,000

2008                                          33,000

2009                                          32,000

2010                                                                                                    $41,000

2011                                                                                                      30,000

2012                                                                                                       41,000


9.  Copper Industries (a sole proprietorship) sold three § 1231 assets during 2011. Data on these property dispositions are as follows:

Asset                Cost             Acquired Depreciation        Sold for               Sold on

Rack          $110,000           10/10/09               $60,000               $55,000                  10/10/12

Forklift        45,000           10/16/08                  21,000                15,000                   10/10/12

Bin               97,000            03/12/11                  31,000                60,000                   10/10/12


  1. Determine the amount and the character of the recognized gain or loss from the disposition of each asset.



  1. Assuming that Copper has $2,000 nonrecaptured net § 1231 losses from prior years, how much of the 2012 recognized gains is treated as capital gains?

10. David contributes to charity some tangible personal property that he had used in his business and depreciated. At the date of the donation, the property has a fair market value of $233,000 and an adjusted basis of zero; it was originally acquired for $400,000. What is the amount of David’s charitable contribution?


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