Exam 13: Property Transactions: Sec1231 and Recapture

Describe the tax treatment for a noncorporate taxpayer in the 39.6% marginal tax bracket who sells each of the first two assets for $500,000 and each of the second two assets for $750,000.Each asset was purchased in 2013 and is used in a trade or business.There are no other gains and losses and no nonrecaptured Sec.1231 losses.

With respect to residential rental property

Indicate whether each of the following assets are capital assets,Sec.1231 assets,or ordinary income property (property which,if sold,results in ordinary income).Assume that all of the property is held for more than one year. a.XYZ Corporation owns land used as an employee parking lot.How is the parking lot classified for tax purposes? b.Montana Corporation owns land held as an investment.How is the land classified for tax purposes? c.John,a self-employed electrician,owns an automobile he uses strictly for personal use.How is the automobile classified for tax purposes? d.Jan,a self-employed contractor,owns a truck she uses exclusively in her trade or business.How is the truck classified for tax purposes? e.Leslie owns an office building where her accounting practice is located.What is the classification of the building? f.Yvonne owns a computer for use in her job as a sales representative.She does not use the computer for personal purposes.How is the computer classified for tax purposes?

Pam owns a building used in her trade or business that was placed into service in 2003.The building cost $450,000 and depreciation to date amounts to $200,000.Pam sells the building for $380,000.It is the only asset she sells this year,and she has no nonrecaptured Sec.1231 losses.What is the amount of recognized gain and the nature of the gain? How will the gain be taxed?

Gains and losses resulting from condemnations of Sec.1231 property and capital assets held more than one year are classified as ordinary gains and losses.

Cassie owns equipment ($45,000 basis and $30,000 FMV) and a building ($152,000 basis and $158,000 FMV),which are used in Cassie's business.Cassie has used straight-line depreciation for both assets,which were acquired two years ago.Both the equipment and the building are destroyed in a fire,and Cassie collects insurance proceeds equal to the assets' FMV.The tax result to Cassie for this transaction is a

WAM Corporation sold a warehouse during the current year for $830,000.The building had been acquired in 1992 at a cost of $730,000 and had total straight-line depreciation of $510,000. What is the amount and nature of the gain or loss on the sale of the warehouse?

Douglas bought office furniture two years and four months ago for $25,000 to use in his business and elected to expense all of it under Sec.179.Depreciation of $3,500 would have been taken under the MACRS rules.If Douglas converts the furniture to nonbusiness use today,Douglas must

A business plans to sell its office building which it acquired and placed in service in 1995.Sec.1250 requires a portion of gain realized on the sale of a building used in a business and depreciated under MACRS to be recaptured as ordinary gain.

A corporation owns many acres of timber,which it acquired three years ago,and which has a $150,000 basis for depletion.The timber is cut during the current year for use in the corporation's business.The FMV of the timber on the first day of the current year is $280,000.If the corporation makes the appropriate election,the tax result is

Melissa acquired oil and gas properties for $600,000.During 2016 she elected to expense the $180,000 of IDC.Total depletion allowed was $50,000.During the current year,Melissa sells the property for $700,000. a.What is the amount of and nature of her gain using the facts above? b.What is the amount of and nature of her gain assuming that she sold the property for $850,000?

When appreciated property is transferred at death,the recapture potential carries over to the person who receives the property from the decedent.

Sec.1245 ordinary income recapture can apply to buildings placed in service prior to 1987.

With regard to noncorporate taxpayers,all of the following statements are true regarding Sec.1250 recapture except

Frisco Inc.,a C corporation,placed a building in service in 2002 and deducted straight-line depreciation under the MACRS system in the normal manner.It sold the building this year for a substantial gain.Because straight-line depreciation was used,Frisco will not need to recognize any ordinary gain.

For livestock to be considered Sec.1231 property,

When gain is recognized on an involuntary conversion,gain is subject to recapture under Sec.1245 or Sec.1250.

Alejandro purchased a building in 1985,which he uses in his manufacturing business.Alejandro uses the ACRS statutory rates to determine the cost-recovery deduction for the building.Alejandro's original cost for the building is $500,000 and cost-recovery deductions allowed are $500,000.If the building is sold for $800,000,the tax results to Alejandro are

Harry owns equipment ($50,000 basis and $38,000 FMV) and a building ($140,000 basis and $156,000 FMV),which are used in his business.Harry 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 Harry collects insurance proceeds equal to the assets' FMV.The tax result to Harry for this transaction is

All of the following are considered related parties for purposes of Sec.1239 recapture with the exception of