Answer the following statements true (T) or false (F)

Question

1. A nonbusiness bad debt is deductible only in the year in which the debt becomes totally worthless.
2. If a capital asset held for one year or more is sold at a gain, the gain is classified as long-term capital gain.
3. Net long-term capital gains receive preferential tax treatment if they exceed net short-term capital losses.
4. A single taxpayer realizes long-term capital gains in 2018. Her taxable income puts her in the 37% tax bracket. She will enjoy a substantial tax savings due to the 15% preferential tax rate that will apply to her adjusted net capital gain.
5. Generally, gains resulting from the sale of collectibles such as antiques, stamps, or artwork are taxed to individual taxpayers at a maximum rate of 25%.

Answer 1

1. TRUE
The law requires recognition of a nonbusiness bad debt as a short-term capital loss, but the loss can only be recognized in the year that the debt becomes worthless.
2. FALSE
The asset must be held for more than one year to qualify as a capital asset.
3. TRUE
Net long-term capital gains will be taxed at lower tax rates.
4. FALSE
While the taxpayer will enjoy tax savings on the ANCG, it will be taxed at the 20% rate because her taxable income will be greater than $425,800 if she is in the 37% tax bracket.
5. FALSE
Gains resulting from the sale of collectibles such as antiques, stamps, or artwork are taxed at a maximum rate of 28%.