1. Which of the following property exchanges does NOT qualify as a like-kind exchange?

A. Exchange of city property for farm property.
B. Exchange of partnership interests.
C. Exchange of improved property for unimproved property.
D. Exchange of an ownership in real estate for a thirty year lease in real estate.

2. Which of the following transactions is NOT a transaction that results in a gain or loss subject to section 1231 treatment?

A. Sales or exchanges of leaseholds.
B. Sales or exchanges of cattle and horses.
C. The sale of a copyright, literary, musical, or artistic composition that you created.
D. Sales or exchanges of unharvested crops sold together with land to the same buyer.

3. Larry owned 35 shares of Flower Corporation stock for which he had paid $3,500. He sold this stock to this sister, Karen, for $3,000. Karen later sold this stock to her cousin, Joe, for $10,000. What is Larry's and Karen's recognized gain or loss, if any?

A. $0 loss for Larry and $6,500 gain for Karen.
B. $0 loss for Larry and $7,000 gain for Karen.
C. $500 loss for Larry and $7,000 gain for Karen.
D. $0 for Larry and $0 for Karen.

4. Which of the following transactions qualifies as a like-kind exchange?

A. The exchange of a copyright on a novel for a copyright on a song.
B. An exchange of the "goodwill or going concern value" of another business.
C. An exchange of land improved with an apartment house for land improved with a store building.
D. An exchange of personal property used predominantly in the United States for personal property used predominantly outside the United States.

5. Special rules apply to like kind exchanges between related persons. Under these rules, related persons are:

A. The taxpayer and a member of his/her family.
B. The taxpayer and a corporation in which the taxpayer has a 25% ownership.
C. The taxpayer and a partnership in which the taxpayer directly or indirectly owns a 25% interest in the capital or profits.
D. All of the above.

6. Which of the following does not qualify as a nontaxable exchange or transfer?

A. A life insurance contract for an annuity contract.
B. A general partnership interest for a general partnership interest in the same partnership.
C. A transfer of property from an individual to a former spouse, incident to divorce.
D. None of the above.

7. Walter is an accrual basis taxpayer who has a business with significant accounts receivables. In 2008, Walter had an $8,000 receivable owed to his business from Fred. Fred was unable to pay the full amount, but did transfer a parcel of land with a fair market value of $6,000 to Walter in partial payment. Walter entered on his books the $2,000 difference as a business bad debt, but was unable to take a tax benefit from this bad debt deduction as he had no taxable income at the end of 2008. In 2009, Walter sold the land received from Fred at a $3,000 gain. At the end of 2009, how much gain from the sale of this land must Walter report in taxable income?

A. $3,000 - the entire gain.
B. $1,000 - the gain less the bad debt.
C. $0 - any gain is limited to the amount of bad debt.
D. None of the above.

8. Kayla exchanged her unimproved land with an adjusted basis of $80,000 and a fair market value of $130,000 for unimproved land with a fair market value of $100,000 and $10,000 in cash. Kayla also paid $5,000 in closing costs. The unimproved land Kayla gave up was subject to a $300,000 mortgage for which she was liable. The other party assumed this mortgage. What is Kayla's realized gain on this exchange?

A. $40,000.
B. $55,000.
C. $35,000.
D. $25,000.

9. In 2005, you purchased a candy making machine for your business. The machine cost $50,000 and you claimed a $20,000 Internal Revenue Code section 179 deduction for that machine. IN 2009, you sold the machine for $52,000. Your accumulated depreciation from 2005 through 2009 was $18,974 (not including the section 179 deduction). How much is your taxable gain and what portion of that gain must be reported as ordinary income under Internal Revenue Code section 1245?

A. Taxable gain of $40,974 and ordinary income of $38,974.
B. Taxable gain of $40,974 and ordinary income of $40,974.
C. Taxable gain of $20,974 and ordinary income of $18,974.
D. Taxable gain of $2,000 and ordinary income of $2,000.

10. The Andee Partnership traded its panel truck with an adjusted basis of $10,000 for a pick-up truck with a fair market value of $15,000. Andee also received $3,500 cash on the trade. What is the gain, if any, on this trade?

A. $0.
B. $3,500.
C. $5,000.
D. $1,500.

11. The Sprinkly and Meato Partnership bought investment property on March 9, 2008 and sold it on March 9, 2009. The property cost $100,000 and it was sold for $135,000. What is the character of the gain or loss?

A. Long term gain of $35,000.
B. Ordinary income $135,000.
C. Short term gain of $35,000.
D. Long term gain of $135,000.

12. The Post and Rail Partnership traded a piece of farm land with an adjusted basis of $4,000 for a farm land for a farm tractor that has a fair market value of $9,000 and an adjusted basis of $8,000. What is the recognized gain or loss?

A. $5,000.
B. $4,000.
C. $1,000.
D. None, it is a like kind exchange.

13. Arthur is a proprietor of Arthur's Pizza Emporium. He bought a commercial building several years ago. He made a down payment of $20,000 in cash and assumed a mortgage for $100,000. After he paid off the mortgage, Arthur later sold the building for $180,000. Straight line depreciation taken up to the date of sale was $18,000. What is the total gain on the sale?

A. $78,000.
B. $80,000.
C. $60,000.
D. $160,000.

14. In 2009, Clarence sold his business backhoe for $65,000. He purchased the backhoe in 2006 for $90,000. He has taken $60,000 of depreciation, which includes $10,000 section 179 expensing election. Clarence will report the following on the sale of the backhoe:

A. Ordinary loss of $25,000.
B. Long-term capital gain of $35,000.
C. Ordinary income of $35,000.
D. Ordinary income of $10,000 and long-term capital gain of $25,000.

15. In 2009, Jason sold a business lot to his son Adam for $12,000. Jason received this lot in a tax-deferred exchange in 2007 for a lot that cost him $175,000 in 2004. Jason will recognize the following on his 2009 tax return:

A. No gain or loss.
B. An ordinary loss of $55,000.
C. A long term gain of $120,000.
D. A long term loss of $163,000.

16. Sally's business office was condemned to make way for an expanded highway on May 1, 2009. Sally's adjusted basis in her building was $20,000 ($80,000 original costs less $60,000 in depreciation). Her proceeds from condemnation were $220,000. Sally replaces her office on November 10, 2009 at a cost of $185,000. Sally must recognize a gain of:

A. $200,000.
B. $0.
C. $35,000.
D. $60,000.

17. John was one of five incorporators of Builders, Inc. Each received stock valued at $100,000. The other four shareholders each contributed $100,000 for their stock. John contributed $50,000 and his services to build the corporate headquarters. He valued his services at $50,000. How much income must John recognize on this transaction?

A. $100,000 of ordinary income.
B. $50,000 of ordinary income and $50,000 of capital gain income.
C. No income recognition.
D. $50,000 of ordinary income.

18. Pietro transfers property worth $50,000 to Vino, Inc. and, also, provides personal services worth $5,000 in exchange for stock valued at $55,000. Immediately after the exchange Pietro owns 90% of Vino, Inc.'s outstanding stock. What is Pietro's income recognition, if any?

A. $55,000 Capital Gains, $0 Ordinary Income.
B. $0 Capital Gain, $5,000 Ordinary Income.
C. $0 Capital Gain, $50,000 Ordinary Income.
D. $5,000 Capital Gain, $0 Ordinary Income.

19. Jenny transferred a factory building with an adjusted basis of $70,000 and a fair market value of $110,000 to the Crystal Corporation in exchange for 100% of Crystal Corporation stock and $20,000 cash. The building was subject to a mortgage of $25,000, which Crystal Corporation assumed. The fair market value of the stock was $75,000. Which is the amount of Jenny's realized gain and recognized gain?

A. Realized $25,000    Recognized $25,000.
B. Realized $50,000    Recognized $40,000.
C. Realized $50,000    Recognized $20,000.
D. Realized $35,000    Recognized $20,000.

20. The total basis for all properties qualifying for nontaxable exclusion that you receive in a partially nontaxable exchange is the total adjusted basis of the properties you give up with the following adjustments, except:

A. Any additional cost you incur.
B. Any money you receive.
C. Unlike property you receive up to its cost on the date of the exchange.
D. Any gain you recognize on the exchange.

21. A used car lot owner sold an adjacent lot on June 9, 2009, for $125,000. He purchased this lot on August 6, 2006, for $65,000. He did not pave this lot or make any improvements to it. He paid $4,600 in closing costs at the sale. How much gain does he have, and what type of gain is it?

A. $55,400 Section 1250 gain.
B. $55,400 Section 1231 gain.
C. $4,600 Section 1245 gain, $50,800 Section 1231 gain.
D. $69,600 Schedule D gain.

22. Jason owns a 55% capital interest in ABC Partnership. His brother owns 60% interest in XYZ Partnership. ABC sold a piece of property with an adjusted basis of $50,000 and a fair market value of $55,000 to XYZ for $45,000. What is ABC's recognized loss?

A. $0.
B. $5,000.
C. $5,500.
D. $10,000.

23. 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.

24. 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.

25. 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).

26. 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.

27. 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 2006 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.

28. 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.

29. 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. Both A and B above.
D. Deferred exchanges.

30. 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.

31. 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.

32. 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).

33. 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.

34. 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.

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

True False

36. 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.

37. 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

38. 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.

39. 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.

40. 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

41. 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. $34,700.
B. $28,000.
C. $17,300.
D. $10,700.

42. Generally, property held for personal use is a

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

8. In 2008 you used a fishing lodge as an entertainment facility. Which of the following incurred expenditures may be partially deductible?

A. Depreciation expense.
B. Fishing bait.
C. Natural gas to heat the lodge.
D. Repairs to the lodge roof.

9. The standard meal allowance cannot be used to figure a deduction for:

A. Business travel if you are self-employed.
B. Travel in connection with investment property.
C. Travel for qualifying educational purposes.
D. Travel to obtain medical treatment.

10. Under which situation below is a deduction allowance for an office in your home?

A. Your home is the only fixed location of your business of selling mechanics' tools at retail. You regularly use your walk-in closet for storage of inventory and product samples. You also use this area occasionally for personal purposes.
B. You are an attorney and use a den in your home to write legal briefs. Your family also uses the den for recreation.
C. You use part of your home exclusively and regularly to read financial periodicals and reports, clip bond coupons, and carry out similar activities to monitor personal investments.
D. You use your walk-in closet at home exclusively and regularly to bill customers, clients, or patients; to set up appointments; and to order supplies. You also rent office space downtown where you also conduct those same activities. You use the home office three days a week and the rented office space two days a week.

11. Pleasant Beach City, to improve downtown commercial business, converted a downtown business area street into an enclosed pedestrian mall. The city assessed the full cost of construction, financed with 10-year bonds, against the affected business properties. The city is paying the principal and interest with the annual payments made by the property owners. The portion that the business owners were assessed to pay the construction costs is:

A. Deductible as taxes.
B. Deductible as a business expense.
C. A non-depreciable capital expenditure.
D. A depreciable capital expenditure.

12. On November 15, 2008, Partnership Z paid $10,000 in accounting and legal fees to prepare and file the partnership agreement. The partnership began business on December 1, 2008. Which of the following is a permissible election for treatment of the $10,000 payment?

A. Deduct $10,000.
B. Deduct $5,000 and amortize the remaining $5,000 over a 5-year period.
C. Deduct $5,000 and amortize the remaining $5,000 over 180 months.
D. Amortize $10,000 over a 5-year period.

13. Amounts paid or incurred to demolish a structure are:

A. Deductible as a casualty loss.
B. Capitalized and amortized over a 180 month period.
C. Treated as a reduction of the basis of the structure.
D. Capitalized and added to the basis of the land where the demolished structure was located.

16. In 2002, XYZ Corporation issued qualified small business stock to you at a costs of $1,500. In 2008, you sold that stock for $50,000. How much of the gain on that sale is excludable from gross income?

A. $0.
B. $7,500.
C. $24,250.
D. $48,500.

17. In 2002 Adam purchased 100 shares of Call Corporation stock for $60 per share. During 2008 Call Corporation completely liquidated. After paying its liabilities, Call Corporation distributed to its shareholders $10,000 in cash and appreciated property sold for $90,000. Adam's portion received a liquidating distribution from Call Corporation of $10,000. Adam must report what amount of capital gains income from this distribution?

A. $4,500.
B. $5,000.
C. $22,500.
D. $25,000.

28. In 2008, pursuant to a complete liquidation, Richards Corporation distributes the following to a shareholder: Inventory, basis $10,000, FMV $20,000; and land held as an investment, basis $5,000, FMV $40,000. The land is subject to a $30,000 liability. What are the amounts and character of income to be recognized by Richards Corporation?

A. $10,000 ordinary income; $35,000 capital gain.
B. $10,000 ordinary income; $65,000 capital gain.
C. $0 ordinary income; $0 capital gain.
D. $10,000 ordinary income; $5,000 capital gain.

29. Colin Corporation acquired 100% of the Lebeck Corporation stock several years ago for $100,000. In 2008 (the current year) Lebeck Corporation was liquidated, and assets having a $130,000 FMV and $50,000 tax basis were transferred to Colin Corporation. Immediately following the liquidation of Colin Corporation sells the assets for $130,000. What is gain or loss if any will Colin Corporation recognize from the sales of the assets?

A. $30,000 gain.
B. $80,000 gain.
C. $(50,000) loss.
D. $-0- none.

31. A taxpayer sold his rental house for $190,000 on May 2008. The depreciation taken under ACRS was $67,840. If the taxpayer had used the straight-line method, the depreciation would have been $64,960. How much Section 1250 gain did this taxpayer have when the house was sold?

A. $2,880.
B. $64,960.
C. $67,840.
D. $110,000.

You will need IRS Publication 537 to complete this seminar.

Please answer the following as accurately as possible.

1. Your basis in a repossessed property is determined as of the date of repossession. It is

A. Your adjusted basis in the installment obligation.
B. Your repossession costs.
C. Your taxable gain on the repossession. 
D. The sum of all of the above.

2. Use the following rule to figure your gain or loss from the disposition of an installment obligation.

A. If you sell or exchange the obligation, or you accept less than face value in satisfaction of the obligation, your gain or loss is the difference between your basis in the obligation and the amount you realize.
B. If you dispose of the obligation in any other way, your gain or loss is the difference between your basis in the obligation and its FMV at the time of the disposition.
C. Both A and B above.
D. None of the above.

3. Each payment on an installment sale usually consists of

A. Interest income.
B. Return of your adjusted basis in the property.
C. Gain on the sale.
D. All of the above.

4. An installment sale is a sale of property where you receive at least one payment after the tax year of the sale.

True False

5. After you have determined how much of each payment to treat as interest, you treat the rest of each payment as if it were made up of

A. A tax-free return of your adjusted basis in the property.
B. You gain (referred to an installment sale income on Form 6252).
C. Both A and B above.
D. None of the above.

6. The selling price is the total cost of the property to the buyer. It does not include

A. Any money you are to receive.
B. The fair market value (FMV) of any property you are to receive.
C. Stated interest, unstated interest, any amount recomputed or recharacterized as interest, or original issue discount.
D. Any of your selling expenses the buyer pays.

7. Your adjusted basis for installment sale purposes is the

A. Adjusted basis.
B. Selling expenses.
C. Depreciation recapture.
D. The total of all of the above.

8. The selling price, minus the mortgages, debts, and other liabilities assumed or taken by the buyer, plus the amount by which the mortgages, debt, and other liabilities assumed or taken by the buyer exceed your adjusted basis for installment sale purposes is

A. Gross profit.
B. Contract price.
C. Adjusted basis.
D. None of the above.

9. The regular sale of inventory is considered an installment sale as long as you receive a payment after the sale.

True False

10. To report an installment sale income from casual sales of real or personal property during the year, you will usually report it on

A. Form 6252.
B. Schedule D (Form 1040).
C. Form 4797.
D. Any of the above.

11. If you sell your home, you may be able to exclude all or part of the gain on the sale. If the sale is an installment sale, any gain you exclude is included in gross profit when figuring your gross profit percentage.

True False

12. An installment sale of property used in your business or that earns rent or royalty income may result in a capital gain, an ordinary gain, or both. For trade or business property held for more than 1 year, enter the amount from line 26 of Form 6252 on

A. Schedule P (Form 1040).
B. Form 4797, line 4.
C. Form 4797, line 10.
D. Schedule B or Schedule 1.

13. If you receive property rather than money from the buyer, it is still considered a payment in he year received. Generally, the amount of the payment is the property's FMV on the date you receive it. If the property the buyer gives you is payable on demand or readily taxable, the amount you should consider as payment in the year received is

A. The FMV of the property on the date you receive it if you use the cash receipts and disbursements method of accounting.
B. The face amount of the obligation on the date you receive it if you use the accrual method of accounting.
C. The stated redemption price at maturity less any original issue discount (OID) or if there is not OID, the stated redemption price at maturity appropriately discounted to reflect the unstated interest.
D. Any of the above.

14. If the buyer pays any part of your expenses related to the sale of your property, it is considered a payment to you in the year of sale

A. Include these expenses in the selling and contract prices when figuring the gross profit percentage.
B. Do not include these expenses in the selling and contract prices when figuring the gross profit percentage.
C. Treat these expenses as a recovery of your basis rather than as a payment.
D. None of the above.

15. If the buyer of your property is the person who hold the mortgage on it, your debt is canceled, not assumed. You are considered to receive a payment equal to the outstanding canceled debt.

True False

16. If you are an installment obligation to secure any debt, the net proceeds from the debt may be treated as a payment on the installment obligation. This is known as the pledge rule and it applies if

A. The sales of property is used or produced in farming.
B. The sales are of personal-use property.
C. The qualifying sales are of time-shares and residential lots.
D. The selling price of the property is over $150,000.

17. If you sell depreciable property to a related person and the sale is an installment sale, you may not be able to report the sale using the installment method. Related persons include

A. A person and all entities that are controlled entities with respect to such person.
B. A taxpayer and any trust in which such taxpayer (or his spouse) is a beneficiary, unless such beneficiary's interest in the trust is a remote contingent interest.
C. Two or more partnerships in which the same person owns, directly or indirectly, more than 50% of the capital interests or the profits interests.
D. Any of the above.

18. You can use the installment method to report a sale of depreciable property to a related person if no significant tax deferral benefit will be derived from the sale and show to the satisfaction of the IRS that avoidance of federal income tax was not one of the principal purpose of sale.

True False

19. If you repossess your property after making an installment sale, you must figure

A. Your gain (or loss) on the repossession.
B. Your basis in the repossess property.
C. Both A and B above.
D. The smaller of A or B above.

20. Figure your basis in an installment obligation by

A. Multiplying the unpaid balance on the obligation by your gross profit percentage.
B. Subtracting the product of the unpaid balance on the obligation and the gross profit percentage.
C. The result of A and B above is your basis in the installment obligation.
D. Any of the above.

21. You must pay interest in subsequent years in installment obligations that originally required interest to be paid are still outstanding at close of a tax year.

True False

22. Your repossession costs include money or property you pay to reacquire the real property. This includes amounts paid to the buyer of the property as well as amount paid to others for the following items, except

A. Court costs and legal fees.
B. The FMV of the buyer's obligations to you that are secured by the real property or the cost of reacquiring those obligations.
C. Publishing, acquiring, filing, or recording of title.
D. Lien clearance.

23. The rules concerning basis and gain on repossessed real property are mandatory. You must use them to figure your basis in the repossessed real property and your gain on the repossession. They apply whether or not you report the sale on the installment method. However, they apply only if

A. The repossessions must be to protect your security rights in the property.
B. The installment obligation satisfied by the repossession must have been received in the original sale.
C. You cannot pay any additional consideration to the buyer to get your property back, unless the requisition and payment of the additional consideration were provided for in the original contract of sale or the buyer has defaulted, or default is imminent.
D. All of the above.

24. Your gain on repossessions is

A. The total payments received, or considered received, on the sale.
B. The total gain already reported as income.
C. The difference between A and B above.
D. Both A and B above.

25. If your trade business or investment property solely for the same kind of property to be held as business or investment property, you can postpone reporting the gain. These are known as

A. Installment sales.
B. Like-kind exchanges.
C. Escrow accounts.
D. Depreciation recapture.

26. If, in addition to like-kind property, you receive an installment obligation in the exchange. Use the following rule to determine the installment sale income for each year.

A. The contract price is reduced by the FMV of the like-kind property received in the trade.
B. The gross profit is reduced by any gain on the trade than can be postponed.
C. Like-kind property received in the trade is not considered payment on the installment obligation.
D. All of the above.

27. To determine whether any of the gain on the sale of the business can be reported on the installment, you must allocate the total selling price and the payments received in the

A. The assets sold at a loss.
B. The real and personal property eligible for the installment method.
C. The real and personal property ineligible for the installment method, including inventory, dealer property, and stocks and securities.
D. The sale between any of the above classes of assets.

28. A partner who sells a partnership interest at a gain may be able to report the sale on the installment method.

True False

29. Section 1274 applies to a debt instrument issued for the sale or exchange of property if any payment under the instrument is due more than 6 months after the date of the sale or exchange and the instrument does not provide for adequate stated interest. Section 1274, does not apply to an installment sale contract that is a cash method debt instrument or that arises from

A. A sale or exchange for which the total payments are $250,000 or less.
B. The sale or exchange of an individual's main home.
C. The sale or exchange of a farm for $1,000,000 or less by an individual, an estate, a testamentary trust, a small business corporation or a domestic partnership that meets requirements similar to those of section 1244(c)(3).
D. Any of the above.

30. Form 4797 is used with estate and trust, partnership, corporation, and S corporation returns, as well as individual returns.

True False

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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.