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.

In 2010, ChaGo Inc. sold a business asset with a $39,400 adjusted tax basis for $130,000. The purchaser paid $50,000 cash and gave ChaGo a note for the $80,000 balance of the price. ChaGo is using the installment sale method to recognize its gain on sale. This year, ChaGo sold the note to a financial institution for the note's $55,000 face value (ChaGo had received a total of $25,000 principal payments on the note.) Compute ChaGo's gain recognized on sale of the installment note.

Four years ago, Mrs. Beights purchased marketable securities for $75,000 cash. At the end of 2012, the FMV of the securities had plummeted to $4,000. Mrs. Beights may elect to recognize her $71,000 loss in 2012, even though she still owns the securities.

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

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

Both corporate and individual taxpayers can deduct capital losses to the extent of capital gains.

O&V sold an asset with a $78,300 adjusted tax basis for $100,000. The purchaser paid $30,000 in cash and assumed O&V's $70,000 mortgage on the asset. Compute O&V's net cash flow from the sale assuming a 35% tax rate.

Mr. Hickem sold an investment asset worth $20,000. The purchaser paid Mr. Hickem by giving him $12,500 cash and an oil painting worth $7,500. Mr. Hickem's amount realized on sale is $12,500.

Gain or loss realized on the disposition of property is recognized unless the tax law provides a nonrecognition exception.

N&B Inc. sold land worth $385,000. The purchaser paid $80,000 cash and assumed N&B's $305,000 mortgage on the land. N&B's amount realized on sale is $385,000.

Mr. and Mrs. Sykes operate a very profitable small business. This year, the Sykes recognized a $100,000 gain on sale of a trade name they had created and copyrighted for use in their business in 1994. Which of the following statements is true?

Mrs. Lex realized a $78,400 gain on sale of investment land to S&T, which issued a 10-year note in full payment. Mrs. Lex must recognize the gain in the year of sale unless she elects to use the installment sale method to recognize gain over the term of the note.

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

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

Bastrop Inc. generated a $169,000 ordinary loss from operations this year. It also recognized $35,920 recaptured ordinary income, $18,000 net Section 1231 loss, and $125,750 net capital gain on the sale of assets. Compute Bastrop's net operating loss.

In 2012, TPC Inc. sold investment land with a $388,000 book and tax basis for $523,000. The purchaser paid $60,000 in cash and gave TPC a note for the $463,000 balance of the price. In 2013, TPC received a $67,800 payment on the note ($40,000 principal + $27,800 interest). In 2013, TPC's use of the installment sale method results in a:

For tax purposes, every asset is a capital asset unless it falls into one of eight categories of noncapital assets.

Benlow Company., a calendar year taxpayer, sold two operating assets this year. The first sale generated a $19,200 Section 1231 loss, and the second sale generated a $33,600 Section 1231 gain. As a result of these sales, Benlow should recognize:

Murrow Corporation generated $285,700 income from the performance of services for its clients. Murrow also sold several operating assets during the year. Compute Murrow's taxable income under each of the following assumptions about the tax consequences of the asset sales. a. Murrow recognized $6,800 recaptured ordinary income, a $23,200 net Section 1231 gain, and an $11,600 net capital loss. b. Murrow recognized a $47,300 net Section 1231 loss and a $5,075 net capital loss. c. Murrow recognized a $61,800 net Section 1231 gain and a $4,210 net capital gain. d. Murrow recognized a $15,300 net Section 1231 loss and a $3,000 net capital gain.

The abandonment of business equipment with a $6,019 adjusted basis results in a $6,019 Section 1231 loss.