Exam 8: Property Dispositions

Irby Inc.was incorporated in 2011 and adopted a calendar year.Here is a schedule of Irby's net Section 1231 gains and (losses)reported on its tax returns through 2016. In 2017,Irby recognized a $14,750 gain on the sale of business land.How is this gain characterized on Irby's tax return?

In 2017,Mary recognized a $45,000 gain on the sale of Section 1231 property.Over the previous five-year period,Mary recognized the following net Section 1231 gains and (losses): 2016 ($28,000) 2015 $16,000 2014 ($30,000) Mary's 2017 gain is characterized as

Which of the following results in a permanent book/tax difference for a corporate taxpayer?

Noble Inc.paid $310,000 for equipment three years ago.This year,it sold the equipment for $200,000.Through date of sale,accumulated book depreciation was $93,840 and accumulated tax depreciation was $147,327.Assuming a 35% tax rate,what is the effect of the sale on Noble's deferred tax accounts?

Mrs.Stile owns investment land subject to a $600,000 nonrecourse mortgage.Her basis in the land is $212,000,and the land's appraised FMV is $575,000.Mrs.Stile is considering defaulting on the mortgage and allowing the creditor to foreclose.If Mrs.Stile disposes of the land through a foreclosure,she will recognize:

Zeron Inc.generated $1,349,600 ordinary income from operations this year.It also recognized $29,200 recaptured ordinary income,$21,000 net Section 1231 gain,and $14,900 net capital loss on the sale of assets.Compute Zeron's taxable income.

Both corporate and individual taxpayers can carry back a net capital loss to the three prior taxable years.

The installment sale method of accounting is not applicable to realized losses.

The use of the installment sale method can result in an unfavorable difference between book income and taxable income in the year of sale.

Mr.and Mrs.Churchill operate a small business.This year,the Churchills sold a commercial office building used in their business for $1.5 million.They purchased the building in 1998 for a cost of $1.4 million and had deducted $538,000 MACRS depreciation through date of sale.The Churchills should characterize the $638,000 gain recognized on sale as:

Several years ago,Y&S Inc.purchased a patent on a production process for $250,000 and has amortized $91,000 of the cost.Y&S has learned that a rival company recently developed a new process that renders the patent worthless.Consequently,Y&S made a public announcement that it would no longer enforce the patent.What is the tax consequence to Y&S of this unfortunate situation?

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:

In 2016,TPC Inc.sold investment land with a $474,000 book and tax basis for $775,000.The purchaser paid $100,000 in cash and gave TPC a note for the $675,000 balance of the price.In 2017,TPC received a $105,500 payment on the note ($67,500 principal + $38,000 interest).Assuming that TPC is using the installment sale method,compute its gain recognized in 2017.

Two months ago,Dawes Inc.broke a multi-year lease on office space that it had occupied for four years.Three years ago,Dawes paid $85,300 to install carpeting and new electrical fixtures throughout the office.Accumulated depreciation through the date that Dawes vacated the office was $51,000.What is the tax consequence of Dawes' abandonment of the carpeting and fixtures?

Schatz Corporation generated $8,083,000 ordinary business income and recognized a $73,900 net capital gain on the sale of assets.Which of the following statements is true?

If a taxpayer sells business realty that was depreciated using the straightline method,the entire gain is characterized as Section 1231 gain.

"Tiny Dancer" is the name of a bronze figurine created by artist Diego Ossa.The owner recently recognized a $43,500 gain on sale of the figurine.Which of the following statements is false?

A tornado demolished several delivery vans owned for three years by Wadham Company.Wadham's adjusted basis in the vans was $28,400,and Wadham paid $90,000 to purchase new vans.Wadham received a $25,000 settlement from its casualty insurance company.Consequently,Wadham recognizes:

Verno Inc.purchased business equipment in March and sold it in November.Verno's gain or loss recognized on the sale is ordinary.

The general rule is that a net Section 1231 loss is treated as a capital loss and a net Section 1231 gain is treated as ordinary income.