Question 1

The sale of land held for investment results in the following type of gain or loss?

Accepted Answer

A)  Capital. 
B)  Ordinary. 
C)  §1231. 
D)  §1245. 
E)  None of these. 
A)  Capital. 
B)  Ordinary. 
C)  §1231. 
D)  §1245. 
E)  None of these.

Question 2

Sadie sold 10 shares of stock to her brother, George, for $500 six months ago. Sadie had purchased the stock for $600 two years earlier. If George sells the stock for $700, what is the amount and character of his recognized gain or loss in the current year?

Accepted Answer

A)  $0. 
B)  $100 short-term capital gain. 
C)  $100 long-term capital gain. 
D)  $200 short-term capital gain. 
E)  None of these. 
A)  $0. 
B)  $100 short-term capital gain. 
C)  $100 long-term capital gain. 
D)  $200 short-term capital gain. 
E)  None of these.

Question 3

The sale of machinery at a loss that was used in a trade or business and held for more than one year results in the following type of loss?

Accepted Answer

A)  Capital. 
B)  §291. 
C)  §1231. 
D)  §1245. 
E)  None of these. 
A)  Capital. 
B)  §291. 
C)  §1231. 
D)  §1245. 
E)  None of these.

Question 4

Buzz Corporation sold an office building that it used in its business for $500,000. Buzz bought the building ten years ago for $650,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Buzz's gain or loss?

Accepted Answer

$10,000 or

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Generally, the amount realized is everything of value received in a sale less selling expenses.

Accepted Answer

A) True 
 B)False

Question 7

In a deferred like-kind exchange the like-kind property to be received must be identified within 45 days and acquired within 180 days from the initial exchange.

Accepted Answer

A) True 
 B)False

Question 8

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: $$\begin{array} { | l | r | r | r | } 
\hline { \text { Asset } } & \text { Original Cost } & \begin{array} { r } 
\text { Accumulated } \
\text { Depreciation }
\end{array} & \text { Gain/Loss } \
\hline \text { Machinery } & \$ 30,000 & \$ 7,000 & \$ 10,000 \
\hline \text { Computers } & 10,000 & 6,000 & ( 2,000 ) \
\hline \text { Building } & 90,000 & 20,000 & ( 2,000 ) \
\hline
\end{array}$$ 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)  $7,000 ordinary income, $1,000 §1231 loss and $2,100 tax liability. 
B)  $6,000 ordinary income and $2,100 tax liability. 
C)  $7,000 §1231 gain and $2,450 tax liability. 
D)  $7,000 §1231 gain and $1,050 tax liability. 
E)  None of these. 
A)  $7,000 ordinary income, $1,000 §1231 loss and $2,100 tax liability. 
B)  $6,000 ordinary income and $2,100 tax liability. 
C)  $7,000 §1231 gain and $2,450 tax liability. 
D)  $7,000 §1231 gain and $1,050 tax liability. 
E)  None of these.

Question 9

Why does §1250 recapture generally no longer apply?

Accepted Answer

A)  Congress repealed the code section. 
B)  The Tax Reform Act of 1986 changed the depreciation of real property to the straight-line method. 
C)  §1245 recapture trumps §1250 recapture. 
D)  Because unrecaptured §1250 gains now apply to all taxpayers instead. 
E)  None of these. 
A)  Congress repealed the code section. 
B)  The Tax Reform Act of 1986 changed the depreciation of real property to the straight-line method. 
C)  §1245 recapture trumps §1250 recapture. 
D)  Because unrecaptured §1250 gains now apply to all taxpayers instead. 
E)  None of these.

Question 10

Alpha sold machinery, which it used in its business, to Beta, a related entity, for $40,000. Beta used the machinery in its business. Alpha bought the equipment a few years ago for $50,000 and has claimed $30,000 of depreciation expense. What is the amount and character of Alpha's gain?

Accepted Answer

A)  $20,000 ordinary income under §1239. 
B)  $10,000 ordinary gain and $10,000 §1231 gain. 
C)  $20,000 ordinary gain. 
D)  $20,000 capital gain. 
E)  None of these. 
A)  $20,000 ordinary income under §1239. 
B)  $10,000 ordinary gain and $10,000 §1231 gain. 
C)  $20,000 ordinary gain. 
D)  $20,000 capital gain. 
E)  None of these.

Question 11

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 12

§1250 recaptures the excess of accelerated depreciation over straight line depreciation on real property placed in service between 1981 and 1986 as ordinary income.

Accepted Answer

A) True 
 B)False

Question 13

Each of the following is true except for:

Accepted Answer

A)  A direct involuntary conversion occurs when property taken under imminent domain is replaced with other property. 
B)  Qualified replacement property rules are more restrictive than the like-kind property rules. 
C)  An indirect involuntary conversion occurs when property is destroyed and insurance proceeds are used to purchase qualified replacement property. 
D)  Losses realized in involuntary conversions are deferred. 
E)  All of these are true. 
A)  A direct involuntary conversion occurs when property taken under imminent domain is replaced with other property. 
B)  Qualified replacement property rules are more restrictive than the like-kind property rules. 
C)  An indirect involuntary conversion occurs when property is destroyed and insurance proceeds are used to purchase qualified replacement property. 
D)  Losses realized in involuntary conversions are deferred. 
E)  All of these are true.

Question 14

Andrea sold a piece of machinery she used in her business for 9 months. The amount realized was $50,000 and the adjusted basis was $55,000. What is Andrea's gain or loss realized and what is the character of the gain or loss?

Accepted Answer

$5,000 ord

Question 15

Which one of the following is not true regarding a like-kind exchange?

Accepted Answer

A)  Loss on like-kind property is not recognized. 
B)  Gains on boot given are deferred. 
C)  Losses on boot given are not recognized. 
D)  Securities can be like-kind with any other securities. 
E)  All of these. 
A)  Loss on like-kind property is not recognized. 
B)  Gains on boot given are deferred. 
C)  Losses on boot given are not recognized. 
D)  Securities can be like-kind with any other securities. 
E)  All of these.

Question 16

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 17

Accounts receivable and inventory are examples of ordinary assets.

Accepted Answer

A) True 
 B)False

Question 18

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 these. 
A)  $0. 
B)  $45,000. 
C)  $60,000. 
D)  $105,000. 
E)  None of these.

Question 19

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 or

Question 20

The general rule regarding the exchanged basis in a like-kind exchange is:

Accepted Answer

A)  The basis is equal to the fair market value of the new property. 
B)  The basis is equal to the fair market value of the old property. 
C)  The basis is equal to the adjusted basis of the old property. 
D)  The basis is equal to the cost basis of the old property. 
E)  All of these. 
A)  The basis is equal to the fair market value of the new property. 
B)  The basis is equal to the fair market value of the old property. 
C)  The basis is equal to the adjusted basis of the old property. 
D)  The basis is equal to the cost basis of the old property. 
E)  All of these.

Exam 10: Property Dispositions

The sale of land held for investment results in the following type of gain or loss?

Sadie sold 10 shares of stock to her brother, George, for $500 six months ago. Sadie had purchased the stock for $600 two years earlier. If George sells the stock for $700, what is the amount and character of his recognized gain or loss in the current year?

The sale of machinery at a loss that was used in a trade or business and held for more than one year results in the following type of loss?

Buzz Corporation sold an office building that it used in its business for $500,000. Buzz bought the building ten years ago for $650,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Buzz's gain or loss?

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

Generally, the amount realized is everything of value received in a sale less selling expenses.

In a deferred like-kind exchange the like-kind property to be received must be identified within 45 days and acquired within 180 days from the initial exchange.

Why does §1250 recapture generally no longer apply?

Alpha sold machinery, which it used in its business, to Beta, a related entity, for $40,000. Beta used the machinery in its business. Alpha bought the equipment a few years ago for $50,000 and has claimed $30,000 of depreciation expense. What is the amount and character of Alpha's gain?

§1250 recaptures the excess of accelerated depreciation over straight line depreciation on real property placed in service between 1981 and 1986 as ordinary income.

Each of the following is true except for:

Andrea sold a piece of machinery she used in her business for 9 months. The amount realized was $50,000 and the adjusted basis was $55,000. What is Andrea's gain or loss realized and what is the character of the gain or loss?

Which one of the following is not true regarding a like-kind exchange?

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?

Accounts receivable and inventory are examples of ordinary assets.

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?

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?

The general rule regarding the exchanged basis in a like-kind exchange is:

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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