Question 1

Gain due to depreciation recapture is included in the netting of Sec.1231 gains and losses.

Accepted Answer

A) True 
 B)False  False

Question 2

A building used in a business for more than a year is sold.Sec.1250 will not cause depreciation recapture if

Accepted Answer

A)  the building is fully depreciated. 
B)  the building was placed in service after 1986. 
C)  straight-line depreciation was used. 
D)  All of the above. 
A)  the building is fully depreciated. 
B)  the building was placed in service after 1986. 
C)  straight-line depreciation was used. 
D)  All of the above. D

Question 3

Network Corporation purchased $200,000 of five-year equipment on March 24,2015.They elected to expense $60,000 of the cost under Sec.179 in effect that year.After depreciating the equipment $28,000 in 2016 and $22,400 in 2017,the equipment was sold for $190,000.
a.What is the amount of the realized gain (or loss) on the sale?
b.How is the gain or loss taxed?

Accepted Answer

a.The realized gain is $100,400 [$190,000 amount realized less $89,600 ($200,000 - $60,000 - $28,000 - $22,400)].
b.All of the gain is Sec.1245 ordinary income.

Question 4

Depreciable property placed in service nine months earlier is considered Sec.1231 property.

Accepted Answer

A) True 
 B)False

Question 5

Section 1250 does not apply to assets sold or exchanged at a loss.

Accepted Answer

A) True 
 B)False

Question 6

Sec.1245 can increase the amount of gain recognized on an asset.

Accepted Answer

A) True 
 B)False

Question 7

The following gains and losses pertain to Arnold's business assets that qualify as Sec.1231 property.Arnold does not have any nonrecaptured net Sec.1231 losses from previous years,and the portion of gain recaptured as ordinary income due to the depreciation recapture provisions has been eliminated.
   
Describe the specific tax treatment of each of these transactions.

Accepted Answer

The $25,000 casualty loss is an ordinary

Question 8

Lucy,a noncorporate taxpayer,experienced the following Sec.1231 gains and losses during the years 2012 through 2017.Her first disposition of a Sec.1231 asset occurred in 2012.Assuming Lucy had no capital gains and losses during that time period,what is the tax treatment in each of the years listed?

Accepted Answer

2012 $2,000 LTCG
2013 $5,000 Ordinary lo

Question 9

Hilton,a single taxpayer in the 28% marginal tax bracket,has $16,000 of nonrecaptured net Sec.1231 losses,at the beginning of a year in which he had the following transactions:
-Sale of Asset A at a $10,000 1231 gain,all of which is unrecaptured Sec.1250 gain
-Sale of Asset B at a $13,000 1231 gain
How are the items reported this year and at which rate(s) are the amounts taxed?

Accepted Answer

Asset A- The entire gain from the sale o

Question 10

Jillian,whose tax rate is 39.6%,had the following sales of Sec.1231 property this year:
Sale of land A at a gain of $15,000
Sale of land B at a gain of $12,000
Sale of land C at a loss of $8,000
a.What is the amount of her resulting tax liability?
b.Assume instead that Jillian has a 15% marginal tax rate.What is the amount of her resulting tax liability?
c. Assume instead that Jillian has a 28% marginal tax rate.What is the amount of her resulting tax liability?

Accepted Answer

a.The net 1231 gain is $15,000 + $12,000

Question 11

Emma owns a small building ($120,000 basis and $123,000 FMV) and equipment ($35,000 basis and $22,000 FMV).Both assets were acquired three years ago,are used in Emma's business,and are depreciated using straight-line depreciation.Both are destroyed by fire.Insurance proceeds were equal to their FMVs.Only one other transfer of an asset occurs during the year,and a $3,000 LTCL is recognized.After considering all transactions,the tax result to Emma is a

Accepted Answer

A)  $13,000 NLTCL. 
B)  $13,000 ordinary loss. 
C)  $3,000 LTCG; $3,000 LTCL; and $13,000 ordinary loss. 
D)  $10,000 net ordinary loss and a $3,000 NLTCL. 
A)  $13,000 NLTCL. 
B)  $13,000 ordinary loss. 
C)  $3,000 LTCG; $3,000 LTCL; and $13,000 ordinary loss. 
D)  $10,000 net ordinary loss and a $3,000 NLTCL.

Question 12

Unrecaptured 1250 gain is the amount of long-term capital gain which would be taxed as ordinary income if Sec.1250 provided for the recapture of all depreciation and not just additional depreciation.

Accepted Answer

A) True 
 B)False

Question 13

Octet Corporation placed a small storage building in service in 2001.Octet's original cost for the building is $800,000 and the cost recovery deductions are $300,000.This year the building is sold for $1,100,000.The amount and character of the gain are

Accepted Answer

A)  ordinary gain of $60,000 and Sec. 1231 gain of $540,000. 
B)  ordinary gain of $300,000 and Sec. 1231 gain of $300,000. 
C)  ordinary gain of $600,000. 
D)  Sec. 1231 gain of $600,000. 
A)  ordinary gain of $60,000 and Sec. 1231 gain of $540,000. 
B)  ordinary gain of $300,000 and Sec. 1231 gain of $300,000. 
C)  ordinary gain of $600,000. 
D)  Sec. 1231 gain of $600,000.

Question 14

All of the following statements regarding Sec.1245 are true except

Accepted Answer

A)  Sec. 1245 does not apply to any buildings placed in service after 1986. 
B)  Sec. 1245 applies to assets sold or exchanged at a gain or at a loss. 
C)  Sec. 1245 property includes nonresidential real estate that qualified as recovery property under the ACRS rules unless the taxpayer elected to use the straight-line method of cost recovery. 
D)  Sec. 1245 ordinary gain treatment applies to total depreciation or amortization allowed or allowable but not more than the realized gain. 
A)  Sec. 1245 does not apply to any buildings placed in service after 1986. 
B)  Sec. 1245 applies to assets sold or exchanged at a gain or at a loss. 
C)  Sec. 1245 property includes nonresidential real estate that qualified as recovery property under the ACRS rules unless the taxpayer elected to use the straight-line method of cost recovery. 
D)  Sec. 1245 ordinary gain treatment applies to total depreciation or amortization allowed or allowable but not more than the realized gain.

Question 15

Four years ago Otto purchased farmland for $600,000 and spent an additional $40,000 on soil and water conservation which was deducted in the year of purchase.Otto has just sold the land for $900,000.How much of the $300,000 gain will be treated as ordinary income?

Accepted Answer

A)  $0 
B)  $24,000 
C)  $40,000 
D)  $300,000 
A)  $0 
B)  $24,000 
C)  $40,000 
D)  $300,000

Question 16

Elaine owns equipment ($23,000 basis and $15,000 FMV) and a building ($136,000 basis and $148,000 FMV),which are used in her business.Elaine uses straight-line depreciation for both assets,which were acquired several years ago.Both the equipment and the building are destroyed in a fire,and Elaine collects insurance proceeds equal to the assets' FMV.
a. What is the tax treatment of these two transactions?
b. Assume that Elaine is only able to collect $3,000 from the insurance company for the equipment loss.What is the tax treatment of the two transactions (assume the basis and insurance reimbursement remain the same for the building).

Accepted Answer

a. Since they are destroyed in a casualt

Question 17

A corporation owns many acres of timber,which it acquired three years ago,and which has a $120,000 basis.The timber was cut last year for use in the corporation's business.The FMV of the timber on the first day of last year was $270,000.The corporation made the appropriate election to treat the cutting as a sale or exchange.The timber is sold for $300,000 this year.The tax result this year is

Accepted Answer

A)  recognition of capital gain of $30,000. 
B)  recognition of Sec. 1231 gain of $30,000. 
C)  recognition of ordinary income of $30,000. 
D)  no income recognized since all recognition occurs in the year of the cutting of the timber. 
A)  recognition of capital gain of $30,000. 
B)  recognition of Sec. 1231 gain of $30,000. 
C)  recognition of ordinary income of $30,000. 
D)  no income recognized since all recognition occurs in the year of the cutting of the timber.

Question 18

Installment sales of depreciable property which result in recaptured income under Secs.1245 or 1250 require that the recaptured income be recognized in the year of sale.

Accepted Answer

A) True 
 B)False

Question 19

Mark owns an unincorporated business and has $20,000 of Sec.1231 gains and $22,000 of Sec.1231 losses.He must report a net capital loss of $2,000 on his tax return.

Accepted Answer

A) True 
 B)False

Question 20

In 1980,Mr.Lyle purchased a factory building to use in business for $480,000.When Mr.Lyle sells the building for $580,000,he has taken depreciation of $470,000.Straight-line depreciation would have been $400,000.Mr.Lyle must report

Accepted Answer

A)  $570,000 of ordinary gain. 
B)  $570,000 of Sec. 1231 gain. 
C)  $70,000 of ordinary income and $500,000 of Sec. 1231 gain. 
D)  $470,000 of ordinary gain and $100,000 of Sec. 1231 gain. 
A)  $570,000 of ordinary gain. 
B)  $570,000 of Sec. 1231 gain. 
C)  $70,000 of ordinary income and $500,000 of Sec. 1231 gain. 
D)  $470,000 of ordinary gain and $100,000 of Sec. 1231 gain.

Gain due to depreciation recapture is included in the netting of Sec.1231 gains and losses.

A building used in a business for more than a year is sold.Sec.1250 will not cause depreciation recapture if

Depreciable property placed in service nine months earlier is considered Sec.1231 property.

Section 1250 does not apply to assets sold or exchanged at a loss.

Sec.1245 can increase the amount of gain recognized on an asset.

Lucy,a noncorporate taxpayer,experienced the following Sec.1231 gains and losses during the years 2012 through 2017.Her first disposition of a Sec.1231 asset occurred in 2012.Assuming Lucy had no capital gains and losses during that time period,what is the tax treatment in each of the years listed?

Unrecaptured 1250 gain is the amount of long-term capital gain which would be taxed as ordinary income if Sec.1250 provided for the recapture of all depreciation and not just additional depreciation.

Octet Corporation placed a small storage building in service in 2001.Octet's original cost for the building is $800,000 and the cost recovery deductions are $300,000.This year the building is sold for $1,100,000.The amount and character of the gain are

All of the following statements regarding Sec.1245 are true except

Four years ago Otto purchased farmland for $600,000 and spent an additional $40,000 on soil and water conservation which was deducted in the year of purchase.Otto has just sold the land for $900,000.How much of the $300,000 gain will be treated as ordinary income?

Installment sales of depreciable property which result in recaptured income under Secs.1245 or 1250 require that the recaptured income be recognized in the year of sale.

Mark owns an unincorporated business and has $20,000 of Sec.1231 gains and $22,000 of Sec.1231 losses.He must report a net capital loss of $2,000 on his tax return.

In 1980,Mr.Lyle purchased a factory building to use in business for $480,000.When Mr.Lyle sells the building for $580,000,he has taken depreciation of $470,000.Straight-line depreciation would have been $400,000.Mr.Lyle must report

An Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Deductions and Losses

Itemized Deductions

Losses and Bad Debts

Employee Expenses and Deferred Compensation

Depreciation, cost Recovery, amortization, and Depletion

Accounting Periods and Methods

Property Transactions: Nontaxable Exchanges

Special Tax Computation Methods, tax Credits, and Payment of Tax

Tax Research

Corporations

Partnerships and S Corporations

Taxes and Investment Planning

Filters

Exam 13: Property Transactions: Sec1231 and Recapture

Gain due to depreciation recapture is included in the netting of Sec.1231 gains and losses.

A building used in a business for more than a year is sold.Sec.1250 will not cause depreciation recapture if

Depreciable property placed in service nine months earlier is considered Sec.1231 property.

Section 1250 does not apply to assets sold or exchanged at a loss.

Sec.1245 can increase the amount of gain recognized on an asset.

Lucy,a noncorporate taxpayer,experienced the following Sec.1231 gains and losses during the years 2012 through 2017.Her first disposition of a Sec.1231 asset occurred in 2012.Assuming Lucy had no capital gains and losses during that time period,what is the tax treatment in each of the years listed?

Unrecaptured 1250 gain is the amount of long-term capital gain which would be taxed as ordinary income if Sec.1250 provided for the recapture of all depreciation and not just additional depreciation.

Octet Corporation placed a small storage building in service in 2001.Octet's original cost for the building is $800,000 and the cost recovery deductions are $300,000.This year the building is sold for $1,100,000.The amount and character of the gain are

All of the following statements regarding Sec.1245 are true except

Four years ago Otto purchased farmland for $600,000 and spent an additional $40,000 on soil and water conservation which was deducted in the year of purchase.Otto has just sold the land for $900,000.How much of the $300,000 gain will be treated as ordinary income?

Installment sales of depreciable property which result in recaptured income under Secs.1245 or 1250 require that the recaptured income be recognized in the year of sale.

Mark owns an unincorporated business and has $20,000 of Sec.1231 gains and $22,000 of Sec.1231 losses.He must report a net capital loss of $2,000 on his tax return.

In 1980,Mr.Lyle purchased a factory building to use in business for $480,000.When Mr.Lyle sells the building for $580,000,he has taken depreciation of $470,000.Straight-line depreciation would have been $400,000.Mr.Lyle must report

An Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Deductions and Losses

Itemized Deductions

Losses and Bad Debts

Employee Expenses and Deferred Compensation

Depreciation, cost Recovery, amortization, and Depletion

Accounting Periods and Methods

Property Transactions: Nontaxable Exchanges

Special Tax Computation Methods, tax Credits, and Payment of Tax

Tax Research

Corporations

Partnerships and S Corporations

Taxes and Investment Planning

Filters