1. The basis of property you buy is usually its cost. The cost is
the amount you pay in cash, debt obligations, other property or services.
True
False
2. Your cost in figuring basis includes amounts you pay for
A.
Sales tax, freight, installation and testing.
B.
Excise taxes, Revenue stamps and recording.
C.
Legal and accounting fees (when they must be capitalized) and real estate taxes
(if assumed for the seller).
D.
Any of the above.
3. If you buy a building for $50,000 cash and assume a mortgage
of $160,000 on it, your basis is
A.
$100,000.
B.
$210,000.
C.
$-0-.
D.
$160,000.
4. If you build property or have assets built for you, your
expenses for this construction are part of your basis. These expenses include
A.
Operating and maintenance cost for equipment.
B. The
value of your own labor.
C.
Any labor you did not pay for.
D.
None of the above.
5. You can include in the basis of property you buy the
settlement fees and closing costs for buying the property. You cannot include
fees and costs for getting a loan on the property. You can include the following
the following in the basis of your property.
A.
Fine insurance premiums.
B.
Charges for utilities or other services related to occupancy of property before
closing.
C.
Any amounts the seller owes that you agree to pay, such as back taxes or
interest, recording or mortgage fees, charges for improvements or repairs, and
sales commissions.
D.
None of the above.
6. If you purchase property to use in your business, your basis
is usually its actual lost to you. If you construct, create, or otherwise
produce property, you must capitalize the costs as your basis.
True
False
7. The uniform capitalization rules specify the costs you add to
basis in certain circumstances. You must use the uniform capitalization rules if
you do the following in your trade or business or activity carried on for
profit.
A.
Produce real or tangible person property for use in the business or activity.
B.
Produce real or tangible personal property for sale to customers.
C.
Acquire property for resale.
D.
Any of the above.
8. Under the uniform capitalization rules, you must capitalize
all direct costs and an allocable part of most indirect costs you incur due to
your production or resale activities.
True
False
9. The following is not subject to the uniform capitalization
rules.
A.
Property you produce that you use in your trade, business, or activity conducted
for profit.
B.
Qualified creative expenses you pay or incur as a free-lance (self-employed)
writer, photographer, or artist are otherwise deductible on your tax return.
C.
Costs for personal property acquired for resale when your average annual gross
receipts for the 3 previous tax years exceed $10 million.
D. All
of the above.
10. The basis of a patent you get for an invention is the cost of
development, such as
A. The
value of the investor's time spent on an invention.
B.
Research and experimental expenditures, drawings, working models, and attorney's
and governmental fees.
C.
Research and experimental expenditure that you deducted as current business
expense.
D. Any of the above.
11. Before figuring gain or loss on a sale, exchange, or other
disposition of property or figuring allowance depreciation, depletion, or
amortization, you must usually make certain adjustments to the basis or the
property. The result of these adjustments to the basis is
A. The property's basis.
B. The adjusted basis.
C. The cost basis.
D.
The basis other than cost.
12. Increase the basis of any property by all items properly
added to a capital account. These include the cost of any improvements having a
useful life of more than 1 year.
True
False
13. Increase the basis of any property by all items properly
added to a capital account. The following item increases the basis of property.
A. The cost of extending utility service lines to the property.
B. Legal fees, such as the cost of defending and perfecting title.
C. Legal fees for obtaining a decrease in an assessment levied against property
to pay local improvements.
D.
Any of the above.
14. You can choose either to deduct or to capitalize certain
costs. If you capitalize these costs, do not include them in your basis. If you
deduct them, include them in your basis.
True
False
15. If you have a casualty or theft loss, decrease the basis in
your property by any insurance or other reimbursement and by any deductible loss
not covered by insurance. You must increase your basis in the property by the
amount you spend on repairs that
A. Substantially prolong the life of the property.
B. Increase the value of the property.
C. Adapts the property to different use.
D.
Any of the above.
16. There are times when you cannot use cost as basis. In these
cases you may use
A. The fair market value of property.
B. The adjusted basis of property.
C. Either A or B above.
D.
None of the above.
17. If a debt you owe is canceled or forgiven, other than as a
gift or bequest, you generally must include the canceled amount in your gross
income for tax purposes. A debt includes any indebtedness for which you are
liable or which attaches to property you hold. You can exclude canceled debt
from income that is
A. Debt canceled in a bankruptcy case or when you are insolvent.
B. Qualified farm debt.
C. Qualified real property business debt (provided you are not a C corporation).
D.
All of the above.
18. A taxable exchange is one in which the gain is taxable or the
loss is deductible. A taxable exchange occurs when you receive cash or property
not similar or related in use to the property exchanged.
True
False
19.
You trade in a truck (adjusted basis
$3,000) for another truck (FMV $7,500) and pay $4,000. Your basis in the new
truck is
A. $3,000.
B. $4,000.
C. $7,000.
D.
$7,500.
20. Your basis is property you inherit from a decedent is
A. The FMV of the property at the date of the individual's death.
B. The FMV on the alternate valuation date if the personal representative for
the estate chooses to use alternative valuation.
C. The value under the special-use valuation method for real property used in
farming or a closely held business if chosen for estate tax purposes.
D.
Any of the above.
