Quiz 7 – Dealings in Properties

Taxation 1: Income Taxation

University of San Jose – Recoletos
School of Business and Management
Department of Accountancy and Finance
Prepared by: Jonah Bianca Marie O. Flores, CPA

15 MCQs
1 Problem

1. The following are ordinary assets, except:

a. Real properties acquired by real estate dealers
b. Real properties acquired in the ordinary course of business by a taxpayer habitually
engaged in the sale of real estate
c. Real properties in the hands of heirs who used the same property in his real estate
business.
d. Real properties received by a stockholder as dividends who is not engaged in the real
estate business.
2. The following are capital assets, except:
a. Real properties abandoned for more than two years by a taxpayer not engaged in the
real estate business.
b. Real properties which are used or being used previously in trade or business by a
taxpayer not engaged in the real estate business
c. Real properties in hands of a done who is not engaged in the real estate business
d. Real properties in the hands of heirs who is not engaged in the real estate business.
3. This is the period from acquisition of the property up to the time of its disposal.
a. Disposition period
b. Hold out period
c. Holding period
d. Hold in period
4. The following are conditions to be met for a sale of principal residence be exempt from capital
gains tax, except:
a. Seller must be a citizen or a resident.
b. Proceeds of the sale is to be utilized within in 18 months from the date of sale to acquire
a new principal residence.
c. BIR is duly notified by the taxpayer of his intention to avail the exemption within 60
days of the sale.
d. All of the above are the conditions to be satisfied.
5. Which is correct regarding capital gains from capital assets:
a. Always subject to regular tax
b. Always subject to capital gains tax
c. Subject to both regular tax and capital gains tax
d. Subject to either regular tax or capital gains tax
6. The gain arising from the sale of ordinary assets:
a. is called an ordinary gain
b. subject to regular tax
 c. will form part of the taxpayers gross income
d. All of the above are correct.
7. Statement 1: All real properties acquired or held by a real estate developer is an ordinary asset:
Statement 2: If a taxpayer is a dealer in securities the gain on sale of the stocks is an ordinary
asset.
a. Statement 1 is true. Statement 2 is false.
b. Statement 1 is false. Statement 2 is true.
c. Both statements are true.
d. Both statements are false.
8. Statement 1: Ordinary gains and losses are offset.
Statement 2: Capital gains and losses are offset.
a. Statement 1 is true. Statement 2 is false.
b. Statement 1 is false. Statement 2 is true.
c. Both statements are true.
d. Both statements are false.
9. Statement 1: Net loss in dealing ordinary assets is deductible from gross income
Statement 2: Net loss in dealing capital assets is not deductible from gross income.
a. Statement 1 is true. Statement 2 is false.
b. Statement 1 is false. Statement 2 is true.
c. Both statements are true.
d. Both statements are false.
10. Statement1: 50% of the capital gain or loss is considered if the asset is held by individuals fore
one year or more.
Statement 2: If the taxpayer is a corporation, a net ordinary loss is deductible from gross income
while a net capital loss is non-deductible.
a. Statement 1 is true. Statement 2 is false.
b. Statement 1 is false. Statement 2 is true.
c. Both statements are true.
d. Both statements are false.
11. Statement 1: If a taxpayer is a resident citizen, all real properties regardless of where it is
located is subject to capital gains tax of 6%.
Statement 2: Ordinary gains are 100% taxable and is subject to capital gains tax of 6%.
a. Statement 1 is true. Statement 2 is false.
b. Statement 1 is false. Statement 2 is true.
c. Both statements are true.
d. Both statements are false.
12. The short-term holding period is:
a. 12 months or less
b. Less than 12 months
c. Up to 24 months
d. 24 months or less
13. The holding period rule applies to:
a. Domestic corporations
b. Taxable trusts
c. General professional partnerships
 d. Resident foreign corporations
14. Which of the following is a capital asset?
a. Home supplies
b. Farm supplies
c. Domestic bonds of a security dealer
d. Residential lot held for sale
15. Which capital asset is subject to capital gains tax?
a. Domestic stocks held for sale
b. Domestic bonds held as investment
c. Domestic stocks held as investments
d. Domestic bonds held for sale

16. PROBLEM 1 (5 points each = 30 points)

Theodore, a resident citizen, had the following activities during the year 2021:
- 6 condo units with an original cost of 700,000 for a selling price of 1,000,000 when the fair market
value of the properties were at 1,500,000.
- 50,000 worth of jewelries for a price of 80,0000. Fair market value at the date of sale was 60,000. This
was in his possession for 3 months.
- His car, originally bought at 450,000, selling price is 400,000. This was in his possession for 1.5 years.
- Shares of stocks from Ginebra Corporation bought at 100,000, sold for 150,000.
- Sold his principal residence for 5,000,000. Zonal value of the property is 5,500,000 and assessed value
is 6,500,000. Bought the house in the year 2016 at 2,500,000.
- Bought a new condo unit after 7 months of selling his old principal residence for 4,500,000 to which he
will be permanently residing in the foreseeable future.
- Gross Income from his merchandising business is 3,450,000.
- His merchandising business incurred expenses of 2,360,000.

Compute the amount of ordinary gain (loss). 2,890,000

Solution:
Ordinary Assets:
Condo units – (1,000,000 – 700,000) x 6 = 1,800,000
Merchandising – (3,450,000 – 2,360,000) = 1,090,000
TOTAL: 2,890,000

Compute the amount of net capital gain (loss) subject to basic tax. 5,000
Solution:
Jewelries – (80,000 – 50,000) = 30,000
Car – (400,000 – 450,000) x 50% = (25,000)
TOTAL: 5,000

Compute the total taxable income for the year.

Solution:
2,890,000 + 5,000 = 2,895,000
Compute the amount of capital gains subject to capital gains tax.
Solution:
Shares of stocks = 150,000 – 100,000 = 50,000
Sale of Old Residence, underutilized proceeds = 6,500,000 x (500,000/5,000,000) = 650,000
TOTAL: 700,000

Compute the cost of the new principal residence of Theodore.

Solution:
2,500,000 x (4,500,000/5,000,000) = 2,250,000

Compute the capital gains tax.

Solution:
Shares of stocks: 50,000 x 15% = 7,500
Sale of Old Residence, underutilized proceeds = (6,500,000 x 6%) x (500,000/5,000,000) = 39,000
TOTAL: 46,500