Question 1

What is the primary purpose of a third-party intermediary in a deferred like-kind exchange?

Accepted Answer

A)  To facilitate finding replacement property. 
B)  To help acquire the replacement property. 
C)  To prevent the seller from receiving cash (boot) that will taint the transaction. 
D)  To certify the taxpayer's Form 8824. 
E)  All of these. 
A)  To facilitate finding replacement property. 
B)  To help acquire the replacement property. 
C)  To prevent the seller from receiving cash (boot) that will taint the transaction. 
D)  To certify the taxpayer's Form 8824. 
E)  All of these.

Question 2

§1231 assets include all assets used in a trade or business.

Accepted Answer

A) True 
 B)False

Question 3

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 machin

Question 4

An asset's tax adjusted basis is usually greater than its book adjusted basis.

Accepted Answer

A) True 
 B)False

Question 5

Jessie sold a piece of land held for investment for $250,000. Jessie bought the land two years ago for $195,000. What is the amount and character of Jessie's gain?

Accepted Answer

Capital ga

Question 6

A loss realized for property destroyed in a hurricane is deferred under the involuntary conversion rules.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following realized gains results in a recognized gain?

Accepted Answer

A)  Farm machinery traded for farm machinery. 
B)  Sale to a related party. 
C)  Involuntary conversion. 
D)  Iowa cropland exchanged for a Minnesota warehouse. 
A)  Farm machinery traded for farm machinery. 
B)  Sale to a related party. 
C)  Involuntary conversion. 
D)  Iowa cropland exchanged for a Minnesota warehouse.

Question 8

Brad sold a rental house that he owned for $250,000. Brad bought the rental house five years ago for $225,000 and has claimed $50,000 of depreciation expense. What is the amount and character of Brad's gain or loss?

Accepted Answer

A)  $25,000 ordinary and $50,000 unrecaptured §1250 gain. 
B)  $25,000 §1231 gain and $50,000 unrecaptured §1250 gain. 
C)  $75,000 ordinary gain. 
D)  $75,000 capital gain. 
E)  None of these. 
A)  $25,000 ordinary and $50,000 unrecaptured §1250 gain. 
B)  $25,000 §1231 gain and $50,000 unrecaptured §1250 gain. 
C)  $75,000 ordinary gain. 
D)  $75,000 capital gain. 
E)  None of these.

Question 9

Luke sold land valued at $210,000. His original basis in the land was $180,000. For the land, Luke received $60,000 in cash in the current year and a note providing $150,000 in the subsequent year. What is Luke's recognized gain in the current and subsequent year, respectively?

Accepted Answer

$8,571 gain recogniz

Question 10

Which of the following gains does not result solely in an ordinary gain or loss?

Accepted Answer

A)  Sale of equipment held for less than a year. 
B)  Sale of inventory. 
C)  Sale of equipment where the gain realized exceeds the accumulated depreciation. 
D)  Sale of equipment where the accumulated depreciation exceeds the gain realized. 
E)  None of these. 
A)  Sale of equipment held for less than a year. 
B)  Sale of inventory. 
C)  Sale of equipment where the gain realized exceeds the accumulated depreciation. 
D)  Sale of equipment where the accumulated depreciation exceeds the gain realized. 
E)  None of these.

Question 11

Realized gains are recognized unless there is specific exception.

Accepted Answer

A) True 
 B)False

Question 12

Gainesville LLC sold the following business assets during the current year: (1) machinery, $20,000 cost basis, $4,000 depreciation, proceeds $22,000; (2) automobile, $15,000 cost basis, $12,000 depreciation, proceeds $7,000; (3) equipment, $15,000 cost basis, $10,000 depreciation, proceeds $4,000; (4) computer equipment, $35,000 cost basis, $16,000 depreciation, proceeds $15,000; (5) Winchester had unrecaptured §1231 losses of $5,000 in the prior 5 years. What is the amount and character of Winchester's gains and losses before the 1231 netting process?

Accepted Answer

$8,000 ord

Question 13

Which of the following is how gain or loss realized is calculated?

Accepted Answer

A)  Cash less selling costs. 
B)  Cost basis less cost recovery. 
C)  Cash less cost recovery. 
D)  Amount realized less adjusted basis. 
E)  None of these. 
A)  Cash less selling costs. 
B)  Cost basis less cost recovery. 
C)  Cash less cost recovery. 
D)  Amount realized less adjusted basis. 
E)  None of these.

Question 14

Which of the following is not a §1245 asset if held for more than one year?

Accepted Answer

A)  Machinery. 
B)  Automobile. 
C)  Building purchased in 1985 for which accelerated depreciation was elected. 
D)  Land. 
E)  None of these. 
A)  Machinery. 
B)  Automobile. 
C)  Building purchased in 1985 for which accelerated depreciation was elected. 
D)  Land. 
E)  None of these.

Question 15

Which one of the following is not considered boot in a like-kind exchange?

Accepted Answer

A)  Cash. 
B)  Other property. 
C)  Mortgage given. 
D)  Mortgage received. 
E)  All of these. 
A)  Cash. 
B)  Other property. 
C)  Mortgage given. 
D)  Mortgage received. 
E)  All of these.

Question 16

Brandon, an individual, began business four years ago and has sold §1231 assets with $5,000 of losses within the last 5 years. Brandon owned each of the assets for several years. In the current year, Brandon sold the following business assets: $$\begin{array} { | l | r | r | r | } 
\hline { \text { Asset } } & \text { Original Cost } & \begin{array} { r } 
\text { Accumulated } \
\text { Depreciation }
\end{array} & \text { Gain/Loss } \
\hline \text { Machinery } & \$ 30,000 & \$ 7,000 & \$ 10,000 \
\hline \text { Land } & 40,000 & 0 & 20,000 \
\hline \text { Building } & 90,000 & 20,000 & ( 5,000 ) \
\hline
\end{array}$$ Assuming Brandon's marginal ordinary income tax rate is 35 percent, what effect do the gains and losses have on Brandon's tax liability?

Accepted Answer

A)  $25,000 ordinary income, $8,750 tax liability. 
B)  $25,000 §1231 gain and $3,750 tax liability. 
C)  $13,000 §1231 gain, $12,000 ordinary income, and $6,150 tax liability. 
D)  $12,000 §1231 gain, $13,000 ordinary income, and $6,350 tax liability. 
E)  None of these. 
A)  $25,000 ordinary income, $8,750 tax liability. 
B)  $25,000 §1231 gain and $3,750 tax liability. 
C)  $13,000 §1231 gain, $12,000 ordinary income, and $6,150 tax liability. 
D)  $12,000 §1231 gain, $13,000 ordinary income, and $6,350 tax liability. 
E)  None of these.

Question 17

Ordinary gains and losses are obtained on the sale of investments.

Accepted Answer

A) True 
 B)False

Question 18

Kristi had a business building destroyed in an earthquake. The old building was purchased for $250,000 and $80,000 of depreciation deductions had been taken. Her insurance proceeds were $550,000. Although the replacement property was much larger and nicer than her old building, Kristi's new property qualified as replacement property. She acquired the new property 13 months after the earthquake for $620,000. What is the amount of Kristi's realized gain and recognized gain and the basis in her new property?

Accepted Answer

$380,000 realized ga

Question 19

§1239 recharacterizes 50 percent of the gain on sales to a related party as ordinary income.

Accepted Answer

A) True 
 B)False

Question 20

All tax gains and losses are ultimately characterized as either ordinary or capital.

Accepted Answer

A) True 
 B)False

Exam 10: Property Dispositions

What is the primary purpose of a third-party intermediary in a deferred like-kind exchange?

§1231 assets include all assets used in a trade or business.

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?

An asset's tax adjusted basis is usually greater than its book adjusted basis.

Jessie sold a piece of land held for investment for $250,000. Jessie bought the land two years ago for $195,000. What is the amount and character of Jessie's gain?

A loss realized for property destroyed in a hurricane is deferred under the involuntary conversion rules.

Which of the following realized gains results in a recognized gain?

Brad sold a rental house that he owned for $250,000. Brad bought the rental house five years ago for $225,000 and has claimed $50,000 of depreciation expense. What is the amount and character of Brad's gain or loss?

Luke sold land valued at $210,000. His original basis in the land was $180,000. For the land, Luke received $60,000 in cash in the current year and a note providing $150,000 in the subsequent year. What is Luke's recognized gain in the current and subsequent year, respectively?

Which of the following gains does not result solely in an ordinary gain or loss?

Realized gains are recognized unless there is specific exception.

Which of the following is how gain or loss realized is calculated?

Which of the following is not a §1245 asset if held for more than one year?

Which one of the following is not considered boot in a like-kind exchange?

Ordinary gains and losses are obtained on the sale of investments.

§1239 recharacterizes 50 percent of the gain on sales to a related party as ordinary income.

All tax gains and losses are ultimately characterized as either ordinary or capital.

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Investments

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning of the Cfa Institute

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