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ComproTax Test 7 (2006)
1. Define the following in simple terms using a description other than the formulae above. A. BASIS: ________________________________________ B. ADJUSTED BASIS _____________________________________________________________

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2. Name three things in addition to what you actually pay as a stated amount in the form of cash, goods and/or services that you include in determining your cost basis of property you buy (excluding real estate and business assets).

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3. SITUATION: You buy a rent house, and on the sales contract, you notice that you paid abstract fees, charges for installing utility services, survey fees, title insurance and some amounts that were owed by the seller. How are these items treated for tax purposes?

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4. On April 22, 1993, Koufax bought a flour mill for $240,000 -- 80% of which was for the building and 20% was for the land. In addition, he paid the seller's back taxes of $7,000, and title and legal fees of $3,000. Koufax added an extenstion to the mill at a cost of $40,000 on June 9, 2001. He was allowed depreciation for 1993 through 2003 in the amount of $74,346 on the original investment, and an additional $2,608 from June, 2002 through December, 2004, on the extension. In January, 2005, lightning struck the mill and did $15,000 in damage to it. Koufax was not insured, but he used $15,000 of his own funds to resotre the mill. Assuming he will be allowed another $7,376 as a depreciation deduction on his 2005 return, and that he deducts $15,000 as a casualty loss, what would be the adjusted basis of the building at the start of 2006 if he decided to sell the property? $____. What is his basis in the land at that time? $____.

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5. What is the "Fair Market Value" (FMV), and what is a common way that it might be determined?

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6. If you receive property for services, you must include the FMV of the property in your income. What, then, would be your basis in the property?

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7. Place an "I" for "INCREASES IT" by the items below, indicating how the item would affect the basis of the property if later sold.

A. Your share paid for hte cost of paving a street in front of your home
B. Insurance proceeds in payment of a loss through fire after a casualty loss deduction has been taken
C. Manufacturer or seller rebates
D. Real estate taxes the buyer paid that were owed by the seller
A and D

8. Place a "DECREASE IT" by the items below, indicating how the item would affect the basis of the property if later sold.

E. Section 179 expense deduction taken; F. Capital improvements (having a useful life of more than 1 year) that increase the value of the property improved
G. Casualty losses claimed as a deduction
Labor costs to put up a new fence around your property
Depreciation allowed or allowable
E., G. and I.

9. Assuming there is no alternative valuation date used by a personal representative, what, generally, would be used as the basis of a car that is inherited by a taxpayer from his/her deceased aunt?

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10. If you buy a lot of shares of stock, and you can identify what you paid for each share and when you bought each by the time you are ready to sell, the basis of each share is what you show you paid for each. However, if you cannot identify the specific shares you sold, what is considered to be the basis of the first securities or stock you sell?

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11. If you sold stocks, commodities or bonds thorugh a broker during the year, what IRS income-reporting form should you receive from that broker? ______________________ to the date of sale, what will this form show on it? ______________________________________.

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12. Put the initials "CA" by each item below which if sold or exchanged, would be considered a "capital asset," thus producing a capital transaction.

A. The family's car that just sits around the house. It was never used for anything other than personal purposes
B. Stocks of XYZ Corporation helf for investment; C. a major appliance sold at a loss by a department store normally selling it for a profit
D. A tax preparer's office furniture; E. Stock on a grocer's shelves; F. A family's furniture items sold as a part of a garage sale
G. Your principal residence
H. A., B., F. and G.

13. Capital gains are taxable. Are capital losses from a sale or exchange ever deductible? YES__ NO__

YES
NO

14. What is a non-business bad debt? ________ Under what conditions is it deductible? _____________________

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15. If you acquire investment property, how long must you hold it before disposing of it in order for your gain to be considered "long term"? ________________

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16. Not withstanding personal casualties and/or thefts or business use, are you allowed to deduct a loss on the sale of your principal residence? YES___ NO___

YES
NO

17. T or F: If you sell your main home during the year, you must report the sale on your tax return for the year of the sale only if you have a gain on the sale and at least part of the gain is taxable?

TRUE
FALSE

18. If a taxpayer is married and filing a separate return, s/he may be able to exclude up to what amount of gain on the sale of his/her main home for 2005?

A. $125,000
B. $250,000
C. $500,000
D. $1,000,000

19. If two taxpayers are married to each other and filing a joint return, they may be able to exclude up to what amount of gain on the sale of their main home for 2005

A. $125,000
B. $250,000
C. $500,000
D. $1,000,000

20. To exclude the gain on the sale of a main home, a taxpaer must meet the "ownership and use tests." These tests are relative to a

A. 2-year period ending on he date of sale of the home
B. 5-year period beginning on the date of purchase
C. 5-year period beginning on the date of first occupancy
D. 5-year period ending on the date of sale
E. 2-year period beginning on the date of purchase

21. Indicate whether Donna meets the "ownership and use" tests for excluding a gain on hte sale of her home in 2005 given the following circumstances.

A. Donna bought her home on February 10, 1999. She lived in it from then until it was sold on July 8, 2005.
B. Donna bought her home on February 10, 2002. She live in it from then until it was sold on July 8, 2005
C. Donna bought her home on February 10, 1998. She lived in it from then until January 4, 2001. On January 4, 2001, she moved out, converted it to rent property and she had it rented ever since. She sold it on July 8, 2005.
D. Donna lived in her home from February 10, 1998 until she sold it on July 8, 2005. owever, she was renting it fomr her parents until she bought it from them on September 25, 2003.
A. and B. are YES. C. and D. are NO.

22. Complete Schedule D with the information provided on Page 3.

I have completed Schedule D, and my answers check out
I have completed Schedule D, and my answers are off
I have completed Schedule D, and I don't understand where I went wrong

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