Question

1. Which of the following statements, if any, is or are true?

I.              As a general rule, income generated by property is not taxable to the person who owns the property if the income is paid to directly to another person who, prior to such payment, performed services with respect to the property.

II.             As a general rule, compensation with respect to the performance of services is taxable to the person who performed the services unless the compensation is assigned to and paid to a creditor of the person who performed the services and the assignment was made prior to performance of the services.

III.            As a general rule, the transferee-assignee for value of the right to income from property when the right matures - and not the transferor-assignor - must pay tax on the income when the income is received, and the transfer by the transferor-assignor for value would not be a sale or exchange as to the transferor-assignor.

                a.             Only I is true.

                b.             Only I and II are true.

                c.             I, II, and III are true.

                d.             None of these is true.

2. Allen owned land that had an adjusted basis to Allen of $610,000. There was a mortgage on the property in the amount of $350,000 for which Allen was personally liable. On April 1, 2019 Allen sold the land for $650,000 in cash, and the buyer assumed the mortgage. The buyer also transferred to Allen the title to the buyer’s boat. The fair market value of the boat was $720,000. How much is Allen’s amount realized?

                a.             $610,000

                b.             $960,000

c.             $1,370,000

                d.             $1,720,000

3. Three years ago, Mia purchased for $25,000 an automobile that she used for grocery shopping and family outings. She sold the car for $12,000 in May 2019. Mia sold no other assets in 2019, and her gross income consisted solely of salary income shown on her Form W-2 as an employee of ABC Corporation in the amount of $40,000. What is the amount of Mia’s loss with respect to the sale of the automobile that may be used to offset her 2019 salary income?

                a.             $0

                b.             ($3,000)

c.             ($12,000)

                d.             ($13,000)

                e.             ($25,000)

4. Which of the following sections is the controlling section with respect to the result in question 5?

a. Code Section 1001(a)

b. Code Section 165(a)

c. Code Section 165(c)

d. Code Section 1211(b)

5. On June 10, 2019 Jessica sold her personal use automobile for $20,000. She purchased the car two years earlier for $17,000. The car increased in value due to its excellent mileage and safe design. How much is Jessica’s recognized gain or loss?

                a.             $0 gain or loss

                b.             $3,000 gain

                c.             $17,000 gain

                d.             $20,000 gain

Answer 1

1. Solution: a. Only I is true

Explanation: As a general rule, income generated by property is not taxable to the person who owns the property if the income is paid to directly to another person who, prior to such payment, performed services with respect to the property.

2. Solution c.$1,370,000

Explanation: The buyer assumed the mortagage and cash piad $650,000 + fair markjet value of boat $720,000. Total Consideration - $1,370,000

3.Solution: b.($3,000)

Explanation: As per US Code Section 1211 (b) If losses exceeds gains then the lower of the following shall be taken

(i) $3,000

(ii) the excess of the such losses over such gains.

4.Solution:a. Code Section 1001(a)

5.Solution b. $3000 Gain