1. Look at the Form 1040 you prepared for Karen Ortega. What is the amount on Form 1040, Line 13?

a. $ 9,727.
b. $ 12,157.
c. $ 6,727. 
d. None of the above.

2. Look at the Form 1040 you prepared for Karen Ortega. What is the amount on Form 1040, Line 74a?

a. $ 229.
b. $ 221.
c. $ -0- owe $77. 
d. None of the above.

3. A transfer of property for money or a mortgage, note, or other promise to pay money.  

a. A purchase.
b. An activity.
c. A sale.
d. A trade.

4. If you sold or traded investment property, you must determine your holding period for the property. You holding period determines whether any capital gain or loss was a

a. Long-term capital gain.
b. Short-term capital gain.
c. Investment property.
d. Both a and b are correct.

5. Basis is a way of measuring your investment in property for tax purposes. You must know the basis of your property to determine whether you have a gain or loss on its sale or other disposition. The basis of property you buy is usually

a. Its purpose.
b. Its cost.
c. Its appearance.
d. Its future worth.

6. The basis of stocks or bonds you own generally is the purchase price plus the costs of purchase, such as commissions and recording or transfer fees.  However, if you acquired stock or bonds other than by purchase, you basis is usually determined by

a. Fair market value.
b. The previous owner's adjusted basis.
c. Sales of similar property, around the same date. 
d. All of the above.

7. You can generally exclude from your income up to 50% of your gain from the sale or trade of qualified small business stock held by you for more than

a. 5 years.
b. 1 year.
c. 6 months. 
d. 2 years.

8. If you hold investment property less than 1 year, any capital gain or loss is

a. A long-term capital gain or loss.
b. A short-term capital gain or loss.
c. A nontaxable short-term gain. 
d. A nontaxable long-term gain.

9. In 2007, your father gave you a gift of property with a fair market value (FMV) of $75,000. His adjusted basis was $50,000. The gift tax paid was $10,000. What is your basis in the property?

a. $60,000.
b. $75,000.
c. $50,000.
d. $53,968.

10.  In 2007, Billy's father deeded him 400 acres of land. The fair market value (FMV) on the date of the transfer was $350,000. His father had paid $40,000 for the land. No gift tax was paid on the transfer. When Billy's father died six months later, the fair market value of the land was $400,000.  What is Billy's basis in 400 acres?

a. $400,000.
b. $350,000.
c. $40,000.
d. $260,000.

11. Stock dividends are distributions made by a corporation of its own stock. You own one share of stock that you bought for $90. The corporation distributed 5 new shares of common stock for each share held. What is your basis for each share of stock?

a. $90.
b. $30.
c. $20.
d. $15.

12. Which of the following determines the basis of property received in exchange for services?

a. The value of services rendered.
b. The basis of the property received.
c. The fair market value of the property received.
d. None of the above.

13. The basis of stock must be adjusted for certain events that occur after purchase. For example, if you receive more stock from nontaxable stock dividends or stock splits, you must

a. Increase the basis on your original stock.
b. Reduce the basis on your original stock.
c. Increase the basis of the of the nontaxable stock dividends.
d. None of the above.

Use IRS Publication 523 to answer the following questions.

14. You may qualify to exclude from your income all or part of any gain from the sale of your main home. You can choose not to take the exclusion by including the gain from the sale in your gross income on your tax return for the year of the sale.

a. This choice can be made at any time before the expiration of a 3-year period beginning on the due date of return (not including extensions) for the year of sale.
b. This choice can be revoked at any time before the expiration of a 3-year period beginning on the due date of return (not including extensions) for the year of sale.
c. You can choose to exercise this option by filling out Form 2116 at the time of the due date of return for the year of sale. 
d. Both a and b are correct.

15. You can exclude up to $250,000 of the gain on the sale of your main home if

a. You meet the ownership test.
b. You meet the use test.
c. During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home.
d. All of the above.

16. You should keep records to prove you home's adjusted basis. Ordinarily, you must keep records after the due date for filing you return for the tax year in which you sold your home. The record you should keep is

a. Proof of the home's purchase price and purchase expenses.
b. Receipts and other records for all improvements, additions, and other items that affect the home's adjusted basis.
c. Any worksheets you used to prepare Form 2119, such as the Adjusted Basis of Home Sold Worksheet or the Capital Improvements Worksheet from the Form 2119 instructions. 
d. Any of the above.

17. You can exclude up to $500,000 of the gain on the sale of your main home if

a. You are married and file a joint return for the year. 
b. Either you or your spouse meets the ownership and use tests.
c. During the 2-year period ending on the date of the sale, neither you or your spouse exclude gain from the sale of another home.
d. All of the above.

18. Which of the following qualifies for exclusion from income of all or part of the gain from the sale of their main home in 2007?

a. You sold a personal residence January 1, 2006 and excluded all the gain. You sold another personal residence December 30, 2007. The reason for selling was not because of health problems or a change in employment or other special circumstances.
b. You owned and lived in your house from January 1, 2006 until February 15, 2007 and then sold it February 20, 2007. The sale was not due to health problems or a change of employment or other special circumstances.
c. Betty sells her house (that she had owned and lived in since 2006) in February 2007 and gets married one month later. Her husband had excluded the gain on the sale of his residence on his 2004 tax return.
d. Mike and his wife moved in a brand new home February 2006. They got a divorced in December 2006 and his wife was allowed to live in the house until sold on July 15, 2007.

19. The required two years of having owned and lived in a principal residence within five years of the date of sale must be continuous to qualify for any part of the $500,000 exclusion.

True False

20. You owned and lived in your house from January 1, 2006 until February 15, 2007 and then sold it February 20, 2007. You can claim an exclusion (although reduced), if 

a. you had a change in employment.
b. you had health problems.
c. you had unforeseen circumstances.
d. Any of the above.

21. If part of your property used for business or to produce rental income is within your home, such as a room used as a home office for a business, you

a. Do not need to allocate the gain on the sale of the property between the business part of the property and the part used as a home.
b. Do not need to report the sale of the business or rental part on Form 4797.
c. Cannot exclude the the part of any gain equal to any depreciation allowed after May 6, 1997.
d. All of the above.

Use IRS Publication 544 to answer the following questions.

22. 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).

23. 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.

24. 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.

25. 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.

26. 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. Deferred exchange property.
d. All of the above.

27. 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.

28. 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.

29. 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).

30. 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.

31. Look at the Form 540 you prepared for Karen Ortega. What is the amount on Form 540, Line 13?

a. $ 12,157.
b. $ 9,727.
c. $ 6,727. 
d. None of the above.

32. Look at the Form 540 you prepared for Karen Ortega. What is the amount on Form 540, Line 66?

a. $ -0-.
b. $ 60.
c. $ -0- owe $708. 
d. None of the above.

33. California law (R&TC Section 18152.5) provides an exclusion (similar to the federal exclusion under IRC Section 1202) of ____ of the gain on the sale of qualifying small business stock originally issued after 8/10/1993 that was held for more than five years.

a. 80%.
b. 50%.
c. 20%. 
d. None of the above.

34. If you sold property at a gain (other than publicly trade stocks or securities) and you will receive a payment in a tax year after the year of sale, you must report the sale on the installment method unless you elect not to do so.

True False

35. You may elect not to use the installment sale method for California by reporting the entire gain on

a. Schedule A (540).
b. Schedule F (540).
c. Schedule D (540). 
d. None of the above.

36. If you dispose an asset used in an activity to which the at-risk rules apply, or any part of your interest in an activity to which the at-risk rules apply, and the amounts in the activity for which you are not at risk. Use California amounts to figure your California deductible loss under at-risk rules on

a. California Form 3801.
b. Federal Form 6198.
c. Federal Form 2439. 
d. Federal Form 4562.

37. California basis of property inherited from a decedent is generally fair market-value (FMV) at time of death.

True False

38. If you were a resident of California for all prior years

a. Enter your capital loss carryover amount as a positive.
b. Re-calculate your 2006 capital carryover loss as if you resided in California for all prior years.
c. Enter your California capital loss carryover from 2006. 
d. None of the above.

39. If you have a net capital loss for California, enter the smaller of the loss or $3,000 ($1,500 if you are married or an RDP filing a separate return).

True False

40. Use California Schedule D (540) even if there is no difference between your California and federal capital gains and losses.

True False