Question 1

The §1231 look-back rule applies whether there is a net gain or loss.

Accepted Answer

A) True 
 B)False

Question 2

Taxpayers can recognize a taxable gain on the sale of an asset even though an asset's real economic value has declined.

Accepted Answer

A) True 
 B)False

Question 3

A net §1231 gain becomes ordinary while a net §1231 loss becomes long-term capital gain.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is True regarding the §1231 look-back rule?

Accepted Answer

A)  It only applies when a §1231 loss occurs. 
B)  It only applies when a §1231 gain occurs. 
C)  It only applies when a §1231 gain occurs and there is a nonrecaptured §1231 loss in the prior five years. 
D)  It only applies when a §1231 gain occurs and there is a nonrecaptured §1231 gain in the prior five years. 
E)  None of the choices are correct. 
A)  It only applies when a §1231 loss occurs. 
B)  It only applies when a §1231 gain occurs. 
C)  It only applies when a §1231 gain occurs and there is a nonrecaptured §1231 loss in the prior five years. 
D)  It only applies when a §1231 gain occurs and there is a nonrecaptured §1231 gain in the prior five years. 
E)  None of the choices are correct.

Question 5

Ashburn reported a $105,000 net §1231 gain in year 6. Assuming Ashburn reported $60,000 of nonrecaptured §1231 losses during years 1-5, what amount of Ashburn's net §1231 gain for year 6, if any, is treated as ordinary income?

Accepted Answer

A)  $0. 
B)  $45,000. 
C)  $60,000. 
D)  $105,000. 
E)  None of the choices are correct. 
A)  $0. 
B)  $45,000. 
C)  $60,000. 
D)  $105,000. 
E)  None of the choices are correct.

Question 6

For an installment sale, the gross profit percentage is the gain recognized divided by the gain realized.

Accepted Answer

A) True 
 B)False

Question 7

A simultaneous exchange must take place for a transaction to qualify as a like-kind exchange.

Accepted Answer

A) True 
 B)False

Question 8

Alexandra sold equipment that she uses in her business for $100,000. Alexandra bought the equipment two years ago for $90,000 and has claimed $25,000 of depreciation expense. What is the amount and character of Alexandra's gain or loss?

Accepted Answer

$25,000 ordinary gain, and $10,000 §1231

Question 9

Explain whether the sale of a machine used in a trade or business that is sold at a loss generates an ordinary or capital loss?

Accepted Answer

The sale of a machine used in a trade or

Question 10

Arlington LLC exchanged land used in its business for some new land. Arlington originally purchased the land for $28,000. The new land had a fair market value of $35,000. Arlington also received $2,000 of office equipment in the transaction. What is Arlington's gain or loss recognized on the exchange?

Accepted Answer

A)  $0. 
B)  $2,000. 
C)  $7,000. 
D)  $9,000. 
E)  None of the choices are correct. 
A)  $0. 
B)  $2,000. 
C)  $7,000. 
D)  $9,000. 
E)  None of the choices are correct.

Question 11

For corporations, §291 recaptures 20 percent of the lesser of depreciation taken or the realized gain as ordinary income.

Accepted Answer

A) True 
 B)False

Question 12

A parcel of land is always a capital asset.

Accepted Answer

A) True 
 B)False

Question 13

Peroni Corporation sold a parcel of land valued at $300,000. Its basis in the land was $250,000. For the land, Peroni received $150,000 in cash in the current year and a note providing Peroni with $150,000 in the subsequent year. What is Peroni's recognized gain in the current and subsequent year, respectively?

Accepted Answer

A)  $0, $50,000. 
B)  $10,000, $40,000. 
C)  $25,000, $25,000. 
D)  $50,000, $0. 
E)  None of the choices are correct. 
A)  $0, $50,000. 
B)  $10,000, $40,000. 
C)  $25,000, $25,000. 
D)  $50,000, $0. 
E)  None of the choices are correct.

Question 14

In the current year, Raven sold machinery with a fair market value of $200,000. The machinery's original basis was $190,000 and Raven's accumulated depreciation on the machinery was $40,000, so its adjusted basis to Raven was $150,000. Raven received $50,000 in the current year and a note paying Raven $75,000 a year for two years beginning in next year. What is the amount and character of the gain that Raven will recognize in the current year?

Accepted Answer

$42,500 gain recognized: $40,000 ordinar

Question 15

Accounts receivable and inventory are examples of ordinary assets.

Accepted Answer

A) True 
 B)False

Question 16

Assets held for investment and personal use assets are examples of capital assets.

Accepted Answer

A) True 
 B)False

Question 17

Sumner sold equipment that it uses in its business for $30,000. Sumner bought the equipment a few years ago for $80,000 and has claimed $40,000 of depreciation expense. Assuming that this is Sumner's only disposition during the year, what is the amount and character of Sumner's gain or loss?

Accepted Answer

A)  $10,000 §1231 loss. 
B)  $10,000 §1245 loss. 
C)  $50,000 ordinary loss. 
D)  $10,000 capital loss. 
E)  None of the choices are correct. 
A)  $10,000 §1231 loss. 
B)  $10,000 §1245 loss. 
C)  $50,000 ordinary loss. 
D)  $10,000 capital loss. 
E)  None of the choices are correct.

Question 18

Brandon, an individual, began business four years ago and has never sold a §1231 asset. Brandon owned each of the assets for several years. In the current year, Brandon sold the following business assets:  
Assuming Brandon's marginal ordinary income tax rate is 32 percent, what effect do the gains and losses have on Brandon's tax liability?

Accepted Answer

A)  $7,000 ordinary income, $1,000 §1231 loss and $1,920 tax liability. 
B)  $6,000 ordinary income and $1,920 tax liability. 
C)  $7,000 §1231 gain and $2,240 tax liability. 
D)  $7,000 §1231 gain and $1,050 tax liability. 
E)  None of the choices are correct. 
A)  $7,000 ordinary income, $1,000 §1231 loss and $1,920 tax liability. 
B)  $6,000 ordinary income and $1,920 tax liability. 
C)  $7,000 §1231 gain and $2,240 tax liability. 
D)  $7,000 §1231 gain and $1,050 tax liability. 
E)  None of the choices are correct.

Question 19

Which of the following is not True regarding installment sales?

Accepted Answer

A)  Only gains are eligible for installment sale reporting. 
B)  Depreciation recapture is deferred in an installment sale. 
C)  The gross profit percentage is needed to determine the annual gain recognized. 
D)  Stock sales are ineligible for installment sale treatment. 
E)  None of the choices are correct. 
A)  Only gains are eligible for installment sale reporting. 
B)  Depreciation recapture is deferred in an installment sale. 
C)  The gross profit percentage is needed to determine the annual gain recognized. 
D)  Stock sales are ineligible for installment sale treatment. 
E)  None of the choices are correct.

Question 20

Why does §1250 recapture generally no longer apply?

Accepted Answer

A)  Congress repealed the code section. 
B)  Real property is depreciated using the straight-line method after 1986. 
C)  §1245 recapture trumps §1250 recapture. 
D)  Because unrecaptured §1250 gains now apply to all taxpayers instead. 
E)  None of the choices are correct. 
A)  Congress repealed the code section. 
B)  Real property is depreciated using the straight-line method after 1986. 
C)  §1245 recapture trumps §1250 recapture. 
D)  Because unrecaptured §1250 gains now apply to all taxpayers instead. 
E)  None of the choices are correct.

The §1231 look-back rule applies whether there is a net gain or loss.

Taxpayers can recognize a taxable gain on the sale of an asset even though an asset's real economic value has declined.

A net §1231 gain becomes ordinary while a net §1231 loss becomes long-term capital gain.

Which of the following is True regarding the §1231 look-back rule?

Ashburn reported a $105,000 net §1231 gain in year 6. Assuming Ashburn reported $60,000 of nonrecaptured §1231 losses during years 1-5, what amount of Ashburn's net §1231 gain for year 6, if any, is treated as ordinary income?

For an installment sale, the gross profit percentage is the gain recognized divided by the gain realized.

A simultaneous exchange must take place for a transaction to qualify as a like-kind exchange.

Alexandra sold equipment that she uses in her business for $100,000. Alexandra bought the equipment two years ago for $90,000 and has claimed $25,000 of depreciation expense. What is the amount and character of Alexandra's gain or loss?

Explain whether the sale of a machine used in a trade or business that is sold at a loss generates an ordinary or capital loss?

For corporations, §291 recaptures 20 percent of the lesser of depreciation taken or the realized gain as ordinary income.

A parcel of land is always a capital asset.

Accounts receivable and inventory are examples of ordinary assets.

Assets held for investment and personal use assets are examples of capital assets.

Sumner sold equipment that it uses in its business for $30,000. Sumner bought the equipment a few years ago for $80,000 and has claimed $40,000 of depreciation expense. Assuming that this is Sumner's only disposition during the year, what is the amount and character of Sumner's gain or loss?

Which of the following is not True regarding installment sales?

Why does §1250 recapture generally no longer apply?

An Introduction to Tax

Tax Compliance, the IRS, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

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Exam 11: Property Dispositions

The §1231 look-back rule applies whether there is a net gain or loss.

Taxpayers can recognize a taxable gain on the sale of an asset even though an asset's real economic value has declined.

A net §1231 gain becomes ordinary while a net §1231 loss becomes long-term capital gain.

Which of the following is True regarding the §1231 look-back rule?

Ashburn reported a $105,000 net §1231 gain in year 6. Assuming Ashburn reported $60,000 of nonrecaptured §1231 losses during years 1-5, what amount of Ashburn's net §1231 gain for year 6, if any, is treated as ordinary income?

For an installment sale, the gross profit percentage is the gain recognized divided by the gain realized.

A simultaneous exchange must take place for a transaction to qualify as a like-kind exchange.

Alexandra sold equipment that she uses in her business for $100,000. Alexandra bought the equipment two years ago for $90,000 and has claimed $25,000 of depreciation expense. What is the amount and character of Alexandra's gain or loss?

Explain whether the sale of a machine used in a trade or business that is sold at a loss generates an ordinary or capital loss?

For corporations, §291 recaptures 20 percent of the lesser of depreciation taken or the realized gain as ordinary income.

A parcel of land is always a capital asset.

Accounts receivable and inventory are examples of ordinary assets.

Assets held for investment and personal use assets are examples of capital assets.

Sumner sold equipment that it uses in its business for $30,000. Sumner bought the equipment a few years ago for $80,000 and has claimed $40,000 of depreciation expense. Assuming that this is Sumner's only disposition during the year, what is the amount and character of Sumner's gain or loss?

Which of the following is not True regarding installment sales?

Why does §1250 recapture generally no longer apply?

An Introduction to Tax

Tax Compliance, the IRS, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Filters