Question

(1pts) 4) Kirby, a single taxpayer, has taxable income of $40,000 and is in the 12% tax bracket. During 2020, she had the following capital asset transactions: $11,000 10,000 2,000 Long-term gain from the sale of a coin collection Long-term gain from the sale of a land investment Short-term gain from the sale of a stock investment Kirby's tax consequences from these gains are as follows: a. (5% * $10,000) + (12% x $13,000). b. (12% * $13,000) + (28% x $11,000). c. (0% x $10,000) + (12% x $13,000). d. (12% x $23,000). b d 5) Harold bought land from Jewel for $150,000. Harold paid $50,000 cash and gave Jewel an 8% note for (1pts) $100,000. The note was to be paid over a five-year period. When the balance on the note was $80,000, Jewel began having financial difficulties. To accelerate her cash inflows, Jewel agreed to accept $60,000 cash from Harold in final payment of the note principal. a. Harold must recognize $20,000 ($80,000 - $60,000) of gross income. b. Harold is not required to recognize gross income but must reduce his cost basis in the land to $130,000 e. Harold is not required to recognize gross income since he paid the debt before it was due. d. Jewel must recognize gross income of $20,000 ($80,000 - $60,000) from discharge of the debt.

Answer 1

4.) OPTION - 'C', (0% * $10000) + (12% * $13000)

EXPLAINATION:- Long-term capital gain on sale of land is taxed at 0%. Long-term gain on sale of coin collection and Short-term capital gain on sale of stock is taxed at 12%.

5.) OPTION - 'B'; Harold is not required to recognize gross income but must reduce his cost basis in the land to $130,000.

EXPLAINATION:- When Harold bought land for $1,50,000, he acquires a basis of $1,50,000 in the land. Due to Jewel's cash problems he managed to pay $20,000 less for the land.

For tax reporting purposes, he need not recognize gross income but he must reflect that he acquired the land for $20,000 less in his basis for the land thereby reducing the basis to $1,30,000.

6.) OPTION - 'B'; $2,500

EXPLAINATION:- Publication 525, Taxable and Non Taxable Income

• Life insurance proceeds received  as a beneficiary upon death of the insured person, are not included in gross income and are not required to be reported.
• However, any interest received is taxable and should be reported as interest received.