Exam 8: Property Dispositions

Mrs. Stile owns investment land subject to a $600,000 nonrecourse mortgage. Her basis in the land is $212,000, and the land's appraised FMV is $575,000. Mrs. Stile is considering defaulting on the mortgage and allowing the creditor to foreclose. If Mrs. Stile disposes of the land through a foreclosure, she will recognize:

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

Mr. Quick sold marketable securities with a $112,900 tax basis to his 100% owned corporation for $95,000 cash. Which of the following statements is true?

Delta Inc. generated $668,200 ordinary income from operations this year. It also recognized $3,910 recaptured ordinary income, $5,000 net Section 1231 gain, and $14,600 net capital loss on the sale of assets. Compute Delta's taxable income.

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?

Milton Inc. recognized a $1,300 net Section 1231 loss in 2014. If Milton recognizes a $5,000 net Section 1231 gain in 2015, it must characterize $1,300 as ordinary income.

The general rule is that a net Section 1231 loss is treated as a capital loss and a net Section 1231 gain is treated as ordinary income.

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?

DiLamer Inc. paid $300,000 to purchase 30-year bonds issued by a publicly held foreign corporation. The foreign government recently privatized the corporation and declared that all outstanding corporate debt obligations would not be honored. What is the tax consequence to DiLamer of this bad news?

Ficia Inc. owned investment land subject to a $294,500 recourse mortgage. Ficia failed to make timely mortgage payments, so the creditor foreclosed. At date of foreclosure, Ficia's basis in the land was $300,000, and the land's appraised FMV was $260,000. The creditor informed Ficia that it would not pursue collection of the $34,500 unpaid balance of the mortgage. Which of the following statements is true?

Mr. and Mrs. Plame sold an investment asset to their grandson Leonard. Because Leonard is a related party, the Plames do not recognize any gain or loss realized on sale.

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.

Two months ago, Dawes Inc. broke a multi-year lease on office space that it had occupied for four years. Three years ago, Dawes paid $85,300 to install carpeting and new electrical fixtures throughout the office. Accumulated depreciation through the date that Dawes vacated the office was $51,000. What is the tax consequence of Dawes' abandonment of the carpeting and fixtures?

A casualty loss realized on the destruction of depreciable business property is characterized as a Section 1231 loss.

Mrs. Tinker paid $78,400 to purchase 15,000 shares of HiFli common stock in 2006. This year, HiFli declared bankruptcy and announced that its stock has no value. What is the tax consequence to Mrs. Tinker of this bad news?

Winslow Company sold investment land to an unrelated purchaser. The purchaser paid $250,000 cash, assumed Winslow's $600,000 mortgage on the land, and gave Winslow its $580,000 ten-year, interest-bearing note. Compute Winslow's amount realized on sale.

Brenda sold investment land for $200,000 in June. Her basis in the land was $75,000. The purchaser paid Brenda $40,000 cash and gave her his 5-year, interest-bearing note for the $160,000 remaining contract price. In December, Brenda received a $20,000 principle payment on the note. Brenda's recognized gain this year is

Fantino Inc. was incorporated in 2013 and adopted a calendar year for tax purposes. Here is a schedule of Fantino's taxable income for 2013 and 2014. In 2015, Fantino generated $297,300 ordinary income and recognized a $14,000 net capital loss. Which of the following statements is true?

Nilex Company sold three operating assets this year. Nilex recognized a $14,100 Section 1231 loss on the first sale, a $20,000 Section 1231 loss on the second sale, and a $19,600 Section 1231 gain on the third sale. Which of the following statements is true?

The seller's amount realized on the sale of property equals any cash received plus the FMV of any property received plus any amount of debt relief to the seller.