Exam 13: Property Transactions: Sec1231 and Recapture

Cobra Inc.sold stock for a $25,000 loss five years ago.It has been carrying over the capital loss for five years,and the loss will expire at the end of this year because Cobra has not had any capital gains.Earlier this year Cobra sold a parcel of land held four years for business use and will recognize a $30,000 gain.Cobra is thinking about selling some machinery used in its business for the past three years.During this time technology has dramatically changed so Cobra will recognize a $32,000 loss on the sale of the machinery.Cobra is trying to decide whether to sell the machinery at year-end or early next year.Cobra is profitable and has a consistent marginal tax rate of 35%.When should Cobra sell the equipment?

Connors Corporation sold a warehouse during the current year for $980,000.The building had been acquired in 1980 at a cost of $830,000.The building is fully depreciated. What is the amount and nature of the gain or loss on the sale of the warehouse?

Sec.1245 applies to gains on the sale of depreciable personal property,but it generally does not apply to depreciable real property.

Jesse installed solar panels in front of his office building in 2016.The panels are not attached to the building.After using the solar panels for 13 months,Jesse decided to replace them with a newer model to obtain a greater savings on electricity costs.Jesse sold the old solar panels for an amount greater than his original purchase price.What tax issues should be considered with purchase,use and sale of the original solar panels?

During the current year,Danika recognizes a $30,000 Sec.1231 gain and a $22,000 Sec.1231 loss.Prior to this,Danika's only Sec.1231 item was a $15,000 loss two years ago.Danika must report a(n)

Gifts of appreciated depreciable property may trigger recapture of depreciation of cost-recovery deductions to the donor as of the date of gift.

Brian purchased some equipment in 2017 which he intends to use in his trade or business.He approaches you to assist him in planning for the ultimate disposal of the asset-whether it be by sale,charitable contribution to the local university,gift to his sister for use in her business,or some other means.Discuss the tax considerations.

During the current year,Kayla recognizes a $40,000 Sec.1231 gain on sale of land and a $22,000 Sec.1231 loss on the sale of land.Prior to this,Kayla's only Sec.1231 item was a $10,000 loss six years ago.Kayla is in the 28% marginal tax bracket.The amount of tax resulting from these transactions is

If the recognized losses resulting from involuntary conversions arising from casualty or theft exceed the recognized gains from such events (i.e.a net loss from the casualty),all of the involuntary conversions are treated as ordinary gains and losses.

Sec.1245 recapture applies to all the following except

Costs of tangible personal business property which are expensed under Sec.179 are subject to recapture if the property is converted to nonbusiness use before the end of the MACRS recovery period.

Sarah owned land with a FMV of $150,000 (adjusted basis $135,000) which is investment property (a capital asset).Sarah owned a second tract of land,a 1231 asset,with a FMV of $38,000 (adjusted basis $55,000).Both tracts were acquired in 2000 and condemned by the state this year.The state paid an amount equal to FMV.If there are no other transactions involving capital assets or 1231 assets,what is the amount that Sarah must report on her current year return?

Jed sells an office building during the current year for $800,000.The building was purchased in 1980 for $350,000.Jed had depreciated the building under an accelerated method,but it is now fully depreciated.Jed has never had any other Sec.1231 transactions. a.What is the recognized gain or loss on the sale of the building and the character of the gain? b.How will the gain be taxed? c.Assume the building was purchased in 1981 and depreciated under ACRS.How will the gain be taxed?

Ross purchased a building in 1985,which he uses in his manufacturing business.Ross uses the ACRS statutory rates to determine the cost-recovery deduction for the building.Ross's original cost for the building is $500,000 and cost-recovery deductions allowed are $500,000.If the building is sold for $340,000,the tax results to Ross are

In order to be considered Sec.1231 property,all of the following livestock must be held for 12 months or more from date of acquisition except

Clarise bought a building three years ago for $180,000 to use in her business.The straight-line method of depreciation was used and $15,000 of depreciation deductions were allowed.During the current year,Clarise sells the building to her wholly owned corporation for $235,000.The tax results to Clarise are

Emily,whose tax rate is 28%,owns an office building which she purchased for $900,000 on March 18 of last year.The building is sold for $950,000 on February 20 of this year when the adjusted basis of the building was $876,000.The tax results to Emily are

The following gains and losses pertain to Jimmy's business assets that qualify as Sec.1231 property.Jimmy 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.

The amount recaptured as ordinary income under either Sec.1245 or Sec.1250 can never exceed the realized gain.

If Sec.1231 applies to the sale or exchange of an unharvested crop sold with land,the costs of producing the crop are