0

Taxation of Capital Gains

Description: Test your knowledge on Taxation of Capital Gains with this comprehensive quiz. Assess your understanding of the various aspects related to capital gains taxation, including computation, exemptions, and reporting requirements.
Number of Questions: 15
Created by:
Tags: taxation capital gains tax law
Attempted 0/15 Correct 0 Score 0

In the context of capital gains taxation, what is the primary factor that determines the tax liability?

  1. The holding period of the asset

  2. The cost of acquisition of the asset

  3. The fair market value of the asset at the time of sale

  4. The net income of the taxpayer


Correct Option: B
Explanation:

The cost of acquisition of the asset, also known as the adjusted basis, is a crucial factor in determining the capital gain or loss. It is subtracted from the proceeds of the sale to calculate the taxable gain.

Which of the following is NOT a characteristic of a capital asset?

  1. It is held for investment or use in a trade or business

  2. It is a personal-use asset, such as a car or a house

  3. It is a depreciable asset

  4. It is a wasting asset, such as a natural resource


Correct Option: B
Explanation:

Personal-use assets, such as cars and houses, are not considered capital assets and are therefore not subject to capital gains taxation.

In the United States, what is the maximum federal capital gains tax rate for individuals in the highest tax bracket?

  1. 15%

  2. 20%

  3. 25%

  4. 37%


Correct Option: B
Explanation:

For individuals in the highest tax bracket, the maximum federal capital gains tax rate is 20%.

What is the holding period requirement for long-term capital gains treatment in the United States?

  1. 1 year

  2. 2 years

  3. 3 years

  4. 5 years


Correct Option: A
Explanation:

In the United States, assets held for more than one year qualify for long-term capital gains treatment, which typically results in a lower tax rate.

Which of the following is NOT a common type of capital gain exclusion?

  1. Exclusion for the sale of a principal residence

  2. Exclusion for the sale of inherited property

  3. Exclusion for the sale of collectibles

  4. Exclusion for the sale of business assets


Correct Option: C
Explanation:

Collectibles, such as art and antiques, are not typically eligible for capital gain exclusions.

In the context of capital gains taxation, what is the purpose of a wash sale?

  1. To avoid paying taxes on a capital gain

  2. To defer the recognition of a capital loss

  3. To reduce the cost basis of an asset

  4. To increase the holding period of an asset


Correct Option: B
Explanation:

A wash sale occurs when a taxpayer sells an asset at a loss and then repurchases a substantially identical asset within a short period of time. This strategy is used to defer the recognition of the capital loss.

What is the term used to describe the difference between the proceeds of a sale and the adjusted basis of an asset?

  1. Capital gain

  2. Capital loss

  3. Net capital gain

  4. Net capital loss


Correct Option: A
Explanation:

The difference between the proceeds of a sale and the adjusted basis of an asset is referred to as a capital gain.

Which of the following is NOT a factor that affects the calculation of the net capital gain or loss?

  1. Short-term capital gains

  2. Long-term capital gains

  3. Short-term capital losses

  4. Ordinary income


Correct Option: D
Explanation:

Ordinary income is not a factor that affects the calculation of the net capital gain or loss.

What is the maximum federal capital gains tax rate for corporations in the United States?

  1. 15%

  2. 20%

  3. 25%

  4. 35%


Correct Option:
Explanation:

For corporations, the maximum federal capital gains tax rate is 21%.

Which of the following is NOT a common method for calculating the cost basis of an asset?

  1. Specific identification

  2. Average cost

  3. First-in, first-out (FIFO)

  4. Last-in, first-out (LIFO)


Correct Option:
Explanation:

LIFO (Last-in, first-out) is not a common method for calculating the cost basis of an asset.

What is the term used to describe the sale of an asset at a price lower than its adjusted basis?

  1. Capital gain

  2. Capital loss

  3. Net capital gain

  4. Net capital loss


Correct Option: B
Explanation:

The sale of an asset at a price lower than its adjusted basis is referred to as a capital loss.

Which of the following is NOT a common type of property that is subject to capital gains taxation?

  1. Real estate

  2. Stocks

  3. Bonds

  4. Mutual funds


Correct Option: C
Explanation:

Bonds are not typically subject to capital gains taxation.

What is the term used to describe the process of reporting capital gains and losses on a tax return?

  1. Capitalization

  2. Depreciation

  3. Amortization

  4. Realization


Correct Option: D
Explanation:

Realization is the process of reporting capital gains and losses on a tax return.

Which of the following is NOT a common type of capital gain tax deferral strategy?

  1. Like-kind exchange

  2. Installment sale

  3. Section 1031 exchange

  4. Net operating loss carryback


Correct Option: D
Explanation:

Net operating loss carryback is not a common type of capital gain tax deferral strategy.

What is the term used to describe the sale of an asset at a price higher than its adjusted basis?

  1. Capital gain

  2. Capital loss

  3. Net capital gain

  4. Net capital loss


Correct Option: A
Explanation:

The sale of an asset at a price higher than its adjusted basis is referred to as a capital gain.

- Hide questions