Answer the following statements true (T) or false (F)
1. On January 1 of this year, Brad purchased 100 shares of stock at $4,000. By December 31 of this year, the stock had declined in value to $2,200, but Brad still held the shares. Brad has realized a $1,800 loss for tax purposes this year.
2. Rick sells stock of Ty Corporation, which has an adjusted basis of $20,000, for $22,000. He pays a sales commission of $500. In computing his gain or loss, the amount realized by Rick is $1,500.
3. Expenditures which do not add to the value or prolong the life of property may be expensed in the year in which they are incurred.
4. Capital recoveries increase the adjusted basis of an asset.
1. FALSE
Mere changes in the value of property are not normally recognized as a disposition for purposes of determining a realized gain or loss.
2. FALSE
The amount realized is the value received less selling expenses. $22,000 - $500 commissions = $21,500.
3. TRUE
The criteria of adding value or prolonging life is what distinguishes a capital expenditure from a currently deductible expenditure.
4. FALSE
Capital recoveries reduce the adjusted basis.
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