Exam 8: Property Dispositions

O&V sold a business asset with a $78,300 adjusted tax basis for $100,000. The purchaser paid $30,000 in cash and gave O&V a note for the $70,000 balance of the price. O&V will not receive a payment on the note until next year. Compute O&V's gain recognized under the installment sale method.

N&B Inc. sold land worth $385,000. The purchaser paid $80,000 cash and assumed N&B's $305,000 mortgage on the land. N&B's amount realized on sale is $385,000.

A taxpayer that is using the installment sale method to recognize gain must recompute the gross profit percentage every year during the term of the installment note.

Both corporate and individual taxpayers can deduct capital losses to the extent of capital gains.

This year, Ms. Lucas sold investment land for $125,000 cash plus the purchaser's assumption of a $50,000 mortgage on the land. Ms. Lucas's tax basis in the land was $93,000. If any recognized gain is taxed at 15 percent, compute the after-tax cash flow from the sale.

Mr. Hickem sold an investment asset worth $20,000. The purchaser paid Mr. Hickem by giving him $12,500 cash and an oil painting worth $7,500. Mr. Hickem's amount realized on sale is $12,500.

Oslego Company, a calendar year taxpayer, sold land with a $400,000 tax basis for $635,000 in March of the current year. The purchaser paid $50,000 cash at closing and gave Oslego an interest-bearing note for the $585,000 remaining price. In September, Oslego received $50,450 cash from the purchaser consisting of a $29,250 principal payment and a $21,200 interest payment. Assuming that Oslego does not elect out of the installment sale method, compute the company's current year gain recognized on sale and its tax basis in the note receivable on December 31.

Benlow Company, a calendar year taxpayer, sold two operating assets this year (each held for over a year). The first sale generated a $19,200 Section 1231 loss, and the second sale generated a $33,600 Section 1231 gain. As a result of these sales, Benlow should recognize:

Tullia Inc. recognized $500,000 ordinary income, $22,600 net Section 1231 gain, and $6,000 net capital loss this year. Tullia's taxable income is $522,600.

Mr. and Mrs. Marley operate a small business. This year, the Marleys sold a commercial office building used in their business for $1.1 million. They purchased the building in 2006 for a cost of $900,000 and have deducted $300,000 MACRS depreciation through date of sale. The Marleys should characterize the $500,000 gain recognized on sale as:

Mr. and Mrs. Plame sold an investment asset to their grandson Leonard. Because Leonard is a related party, the Plames do not recognize any gain or loss realized on sale.

Nolan Inc. sold marketable securities with a $223,000 basis to Totem Company. Compute Nolan's recognized gain or loss assuming that: Nolan's amount realized on sale was $160,000, and Nolan and Totem are unrelated parties.Nolan's amount realized on sale was $275,000, and Nolan and Totem are unrelated parties.Nolan's amount realized on sale was $160,000, and Nolan and Totem are related parties.Nolan's amount realized on sale was $275,000, and Nolan and Totem are related parties.

Mr. Beck sold real property with a $140,000 adjusted basis for $255,000. The buyer paid $148,000 cash and assumed Mr. Beck's $107,000 mortgage on the realty. Mr. Beck's realized gain or loss on sale is:

Rizzi Corporation sold a capital asset with a $692,000 book and tax basis for $650,000 cash. This was Rizzi's only asset sale during the year. The sale results in:

A taxpayer cannot compute its net Section 1231 gain or loss for a taxable year until the year closes.

The installment sale method of accounting does not apply to which of the following sales?

Mrs. Beld sold marketable securities with a $79,600 tax basis to her daughter for $60,000 cash. Two years later, the daughter sold the securities through her broker for $93,000. Compute the daughter's gain recognized on sale.

Mr. Jason realized a gain on sale of a residential apartment complex that he had placed in service in 1994. Accumulated MACRS depreciation on the complex was $311,800. The entire gain is characterized as Section 1231 gain.

A corporation can use the installment sale method of accounting for both book and tax purposes.

Thieves stole computer equipment owned by Eaton Company and used for three years in its consulting business. Eaton's adjusted basis in equipment was $23,200, and its replacement value was $50,000. Eaton's insurance company paid only $15,000 on Eaton's claim for the theft loss. As a result, Eaton recognizes: