Exam 8: Property Dispositions

Proctor Inc.was incorporated in 2011 and adopted a calendar year.Here is a schedule of Proctor's net Section 1231 gains and (losses)reported on its tax returns through 2016. In 2017,Proctor recognized a $25,000 gain on the sale of business land.How is this gain characterized on Proctor's tax return?

Bastrop Inc.generated a $169,000 ordinary loss from operations this year.It also recognized $35,920 recaptured ordinary income,$18,000 net Section 1231 loss,and $125,750 net capital gain on the sale of assets.Compute Bastrop's net operating loss.

Firm F purchased a commercial office building for business use in 2006 for $965,000.This year,the firm sold the building for $1 million.Accumulated MACRS depreciation through date of sale was $275,000.Which of the following statements is true?

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

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.

Milton Inc.recognized a $1,300 net Section 1231 loss in 2015.If Milton recognizes a $5,000 net Section 1231 gain in 2016,it must characterize $1,300 as ordinary income.

In 2016,TPC Inc.sold investment land with a $388,000 book and tax basis for $523,000.The purchaser paid $60,000 in cash and gave TPC a note for the $463,000 balance of the price.In 2017,TPC received a $67,800 payment on the note ($40,000 principal + $27,800 interest).In 2017,TPC's use of the installment sale method results in a:

CBM Inc.realized a $429,000 gain on sale of a commercial office building that the corporation placed in service in 1994.Accumulated MACRS depreciation on the complex was $311,800.The entire gain is characterized as Section 1231 gain.

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.

Three years ago,ChaGo Inc.sold a business asset with a $39,400 adjusted tax basis for $130,000.The purchaser paid $50,000 cash and gave ChaGo a note for the $80,000 balance of the price.ChaGo is using the installment sale method to recognize its gain on sale.This year,ChaGo sold the note to a financial institution for the note's $55,000 face value (ChaGo had received a total of $25,000 principal payments on the note.)Compute ChaGo's gain recognized on sale of the installment note.

Andrew sold IBM stock to his sister Susan for $6,000.Andrew purchased the stock two years ago for $8,000.Susan sold the stock through her broker for $7,300.How much gain or loss did Susan recognize on the sale?

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.

Inventory,accounts receivable,and machinery used in a business are examples of capital assets.

A fire destroyed business equipment that was worth $100,000 and had a $118,100 adjusted tax basis.The equipment was uninsured.The owner can recognize a $118,100 ordinary casualty loss.

Brenda sold investment land for $200,000 in June.Her basis in the land was $75,000.The purchaser paid Brenda $40,000 cash and gave her his 5-year,interest-bearing note for the $160,000 remaining contract price.In December,Brenda received a $20,000 principle payment on the note.Brenda's recognized gain this year is:

Abada Inc.has a $925,000 basis in 100% of the stock of AbWest Inc.,which derives all its income from a manufacturing activity.If Abada determines that the AbWest stock is worthless,it can recognize a $925,000 ordinary loss.

Oslego Company,a calendar year taxpayer,sold land with a $400,000 tax basis for $635,000 in March 2017.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 2017 gain recognized on sale and its tax basis in the note receivable on December 31.

Nancy owned business equipment with a $16,950 adjusted basis and a $7,500 FMV that was destroyed by a tornado.The equipment was uninsured.As a result of this casualty,Nancy:

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.

Which of the following statements about Section 1250 recapture rule is false?