Exam 8: Property Dispositions

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.

Which of the following is a Section 1231 asset?

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.

Mr. and Mrs. Marley operate a small business. This year, the Marleys sold a commercial office building used in their business for $1.1 million. They purchased the building in 1998 for a cost of $900,000 and have deducted $300,000 MACRS depreciation through date of sale. The Marleys should characterize the $500,000 gain recognized on sale as:

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

Proctor Inc. was incorporated in 2004 and adopted a calendar year. Here is a schedule of Proctor's net Section 1231 gains and (losses) reported on its tax returns through 2009. In 2010, Proctor recognized a $25,000 gain on the sale of business land. How is this gain characterized on Proctor's tax return?

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

Princetown Inc. has a $4.82 million basis in 88% of the outstanding stock of Merryvale Corporation. Merryvale manufactures Christmas decorations, cards, and wrapping paper. Princetown's board of directors recently learned that Merryvale is bankrupt. The board voted unanimously to dissolve the corporation and distribute all assets to Merryvale's creditors. What is the tax consequence to Princetown of the board's actions?

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?

A corporation can use the installment sale method of accounting for both book and tax purposes.

Both corporate and individual taxpayers may be taxed at a preferential rate on net capital gain.

Oslego Company, a calendar year taxpayer, sold land with a $400,000 tax basis for $635,000 in March 2012. 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 2012 gain recognized on sale and its tax basis in the note receivable on December 31.

Which of the following assets is not a Section 1231 asset?

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?

Every gain or loss realized on the disposition of property is ultimately characterized as either ordinary or capital for tax purposes.

Langtry Corporation recognized $798,000 ordinary income, $13,000 net Section 1231 loss, and $6,000 net capital loss this year. Langtry's taxable income is $785,000.

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

Dolzer Inc. sold a business asset with a $474,000 adjusted book and tax basis for $775,000. The purchaser paid $100,000 in cash and gave Dolzer a note for the $675,000 balance of the price. Dolzer will not receive a payment on the note until next year. Assuming that Dolzer uses the installment sale method, compute Dolzer's book and tax gain in the year of sale.

A taxpayer cannot compute its net Section 1231 gain or loss for a taxable year until the year closes.

Because land is nondepreciable, it is always a capital asset.