Tax Lesson 25 - Property Sales

1. If property that is repossessed or foreclosed on secures a debt for which you are personally liable (recourse debt), you generally must report as ordinary income the amount by which the cancelled debt is more than the fair market value of the property. Income from the cancellation of debt is not taxed if

A. The cancellation is intended as a gift.
B. You are insolvent or bankrupt.
C. The debt is qualified real property business debt. 
D. Any of the above.

2. Under the like-kind exchange rules, you generally must make a property-by-property comparison to figure your recognized gain and the basis of the property you receive in the exchange. However, for exchanges of multiple properties, you do not make a property-to-property comparison if you

A. Transfer and receive properties in two or more exchange groups.
B. Transfer or receive more than one property within a single exchange group.
C. Either A or B above. 
D. None of the above.

3. If your capital losses are more than your capital gains, you must deduct the difference even if you do not have ordinary income to offset it. The yearly limit on the amount of the capital loss you can deduct is

A. $ 500 ($250 if MFS).
B. $ 1,000 ($ 500 if MFS).
C. $ 3,000 ($1,500 if MFS).
D. $ 4,000 ($2,000 if MFS).

4. Almost everything your own and use for personal purposes or investment is a capital asset. The following item is not an example of a capital asset.

A. Stocks and bonds.
B. A home owned and occupied by you and your family.
C. Household furnishings.
D. A copyright.

5. Steve sold a building for $100,000 cash plus property with a fair market value (FMV) of $10,000. He had purchased the building in 2005 for $85,000. He made $30,000 worth of improvements and deducted $25,000 for depreciation. The buyer assumed Steve's real estate taxes of $12,000 and mortgage of $20,000 on the building. Steve paid selling expenses of $3,500. What amount of gain should be recognized on the sale of the building?

A. $16,500.
B. $36,500.
C. $52,000.
D. $48,500.

6. If you dispose of depreciable or amortizable property at a gain, you may have to treat all or part of the gain as

A. Non-taxable income.
B. Ordinary income (even if otherwise nontaxable).
C. Business income reportable on Schedule C.
D. None of the above.

7. The exchange of property for the same kind of property is the most common type of nontaxable exchange. To be a like-kind exchange, the property traded and the property received must be

A. Qualifying property.
B. Like-kind property.
C. Non-qualifying property.
D. Both A and B above.

8. An involuntary conversion occurs when your property is destroyed, stolen, condemned, or disposed of under the threat of condemnation and you receive other property or money in payment, such as insurance or a condemnation award. Gain or loss from an involuntary conversion of your property is

A. Not taxable because it is against your will.
B. Usually recognized  for tax purposes unless the property is your main home.
C. Not reported anywhere on your return because usually they are considered non-taxable exchanges.
D. None of the above.

9. If you report the sale of property under the installment method, any depreciation recapture under section 1245 or 1250 is

A. Not taxable because that would be double taxation.
B. Taxable as ordinary income in the year of sale.
C. Taxable in the year you get your final payment.
D. None of the above.

10. Report gain on the sale or exchange of property held for personal use (such as your home) on Schedule D. Loss from the sale or exchange of property held for personal use is

A. Deductible.
B. Not deductible.
C. Also reported on Schedule D (Form 1040).
D. Reported on Schedule A (Form 1040).

11. Almost everything you own and use for personal purposes or investment is a

A. Capital asset.
B. Non-capital asset.
C. Personal asset.
D. Business asset.

12. If you sell or exchange property you used partly for business or rental purposes and partly for personal purposes, you

A. Must figure the gain or loss on the sale or exchange as though you had sold separate pieces of property.
B. Must figure the gain or loss on the sale or exchange as though the whole property was used for business.
C. Must figure the gain or loss or the sale or exchange as though the whole property was used for personal.
D. Must subtract depreciation you took or could have taken from the basis of the personal part.

13. A transfer of property to satisfy a debt is an exchange.

True False

14. You sold property with a fair market value of $12,000 to a charitable organization for $3,000 and are allowed a deduction for your contribution. Your adjusted basis in the property is $4,000. Your gain on the sale is

A. $800.
B. $2,000.
C. $1,200.
D. $1,000.

15. You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange.

True False

16. A condemnation is the process by which private property is legally taken for public use without the owner's consent. The property may be taken by the federal government, a state government, a political subdivision, or a private organization that has the power to legally take it. A condemnation is like a forced sale,

A. The owner being the buyer and the condemning authority being the seller.
B. The owner being the seller and the condemning authority being the buyer.
C. The owner being the seller and the condemning authority being the repo agent.
D. None of the above.

17. Payments you receive to relocate and replace housing because you have been displaced from your home, business, or farm as a result of a federal or federally assisted programs are not part of the condemnation award.

A. Do not include them in your income.
B. Do not include in the property's basis as part of the cost.
C. Include them in your income.
D. You must reduce the award by special assessment levied against the part of the property.

18. If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. The foreclosure or repossession is not treated as a sale or exchange from which you may realize gain or loss.

True False

19. Timothy sold a condominium for $90,000. He had bought the property 10 years earlier in January for $45,000. He used two-thirds of it as his home and rented out the other third. He claimed depreciation of $4,300 for the rented part during the time he owned the property. He made no improvements to the property. His selling expenses for the condo were $6,000. What is his gain?

A. $11,072.
B. $26,000.
C. $17,300.
D. $-0-.

20. Generally, property held for personal use is a

A. Noncapital asset.
B. Capital gain.
C. Capital asset.
D. Personal asset.