Question 1

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

Accepted Answer

A) True 
 B)False  False

Question 2

Realized gains are recognized unless there is specific exception.

Accepted Answer

A) True 
 B)False  True

Question 3

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 gain of $55,000.

Question 4

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 5

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

Accepted Answer

A) True 
 B)False

Question 6

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 7

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

Question 8

Depreciation recapture changes both the amount and character of a gain.

Accepted Answer

A) True 
 B)False

Question 9

What is the character of land used in an active trade or business for two years?

Accepted Answer

A)  Capital. 
B)  Ordinary. 
C)  §1231. 
D)  Investment. 
E)  None of these. 
A)  Capital. 
B)  Ordinary. 
C)  §1231. 
D)  Investment. 
E)  None of these.

Question 10

Losses on sales between related parties are realized but not recognized.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Silver sold machinery to Gold, a related entity, which it used in its business for $55,000. Silver bought the equipment a few years ago for $50,000 and has claimed $15,000 of depreciation expense. What is the amount and character of Silver's gain?

Accepted Answer

$20,000 of

Question 14

An installment sale is any sale where at least a portion of the sales proceeds is recognized in a subsequent taxable year.

Accepted Answer

A) True 
 B)False

Question 15

Suzanne, an individual, began business four years ago and has never sold a §1231 asset. Suzanne owned each of the assets for several years. In the current year, Suzanne sold the following business assets: $$\begin{array} { | l | r | r | r | } 
\hline { \text { Asset } } & \text { Original Cost } & \begin{array} { r } 
\text { Accumulated } \
\text { Depreciation }
\end{array} & \text { Gain/Loss } \
\hline \text { Machinery } & \$ 12,000 & \$ 7,000 & \$ 6,000 \
\hline \text { Furniture } & 10,000 & 2,000 & ( 3,000 ) \
\hline \text { Building } & 90,000 & 20,000 & 15,000 \
\hline
\end{array}$$ Assuming Suzanne's marginal ordinary income tax rate is 35 percent, what is the character of the gains and losses and what affect do they have on Suzanne's tax liability?

Accepted Answer

$6,000 ordinary gain

Question 16

Odintz traded machinery for machinery. Odintz originally purchased its machine for $150,000 and the adjusted basis was $90,000 at the time of the exchange. The machinery received was purchased for $200,000, had an adjusted basis of $155,000 at the time of the exchange, and was subject to a mortgage of $50,000 that was paid off before the transfer. What is Odintz's adjusted basis in the new machinery after the exchange?

Accepted Answer

The answer of Odintz traded machinery for machinery. Odintz originally...

Question 17

The adjusted basis is the cost basis less cost recovery deductions.

Accepted Answer

A) True 
 B)False

Question 18

Residential real property is not like-kind with non-residential real property.

Accepted Answer

A) True 
 B)False

Question 19

The gain or loss realized is always recognized for tax purposes.

Accepted Answer

A) True 
 B)False

Question 20

When does unrecaptured §1250 gains apply?

Accepted Answer

A)  When the taxpayer makes the election. 
B)  It applies only when non-corporate taxpayers sell depreciable real property at a gain. 
C)  It applies when §1245 recapture trumps §1250 recapture. 
D)  It applies only when real property purchased before 1986 is sold at a gain. 
E)  None of these. 
A)  When the taxpayer makes the election. 
B)  It applies only when non-corporate taxpayers sell depreciable real property at a gain. 
C)  It applies when §1245 recapture trumps §1250 recapture. 
D)  It applies only when real property purchased before 1986 is sold at a gain. 
E)  None of these.

Exam 10: Property Dispositions

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

Realized gains are recognized unless there is specific exception.

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?

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

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?

Depreciation recapture changes both the amount and character of a gain.

What is the character of land used in an active trade or business for two years?

Losses on sales between related parties are realized but not recognized.

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

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

Silver sold machinery to Gold, a related entity, which it used in its business for $55,000. Silver bought the equipment a few years ago for $50,000 and has claimed $15,000 of depreciation expense. What is the amount and character of Silver's gain?

An installment sale is any sale where at least a portion of the sales proceeds is recognized in a subsequent taxable year.

The adjusted basis is the cost basis less cost recovery deductions.

Residential real property is not like-kind with non-residential real property.

The gain or loss realized is always recognized for tax purposes.

When does unrecaptured §1250 gains apply?

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

Filters