Question 1

Why did Congress establish favorable treatment for 1231 assets?

Accepted Answer

A)  to encourage the mobility of capital 
B)  to allow a larger deduction for losses 
C)  to help business owners replace assets which had declined in value 
D)  All of the above. 
A)  to encourage the mobility of capital 
B)  to allow a larger deduction for losses 
C)  to help business owners replace assets which had declined in value 
D)  All of the above.

Question 2

This year Pranav had the gains and losses noted below on property,plant and equipment used in his business.Each asset had been held longer than one year.
 
A review of Pranav's reporting of Sec.1231 transactions for the prior five years indicates a net Sec.1231 loss of $14,000 three years ago and a net Sec.1231 gain of $8,000 last year (before the five-year lookback).Pranav will recognize

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 3

For a business,Sec.1231 property does not include

Accepted Answer

A)  timber, coal, or domestic iron ore. 
B)  inventory purchased 24 months ago. 
C)  an office building purchased five years ago. 
D)  land used in the business that was purchased two years ago. 
A)  timber, coal, or domestic iron ore. 
B)  inventory purchased 24 months ago. 
C)  an office building purchased five years ago. 
D)  land used in the business that was purchased two years ago.

Question 4

Heather purchased undeveloped land to drill for oil and gas.She spent $800,000 on intangible drilling costs during the year of purchase,which she elected to immediately deduct.During the three years of the well's operation,Heather deducted $1.2 million of cost depletion.Heather has sold the property for a $3 million gain.The gain will be treated as

Accepted Answer

A)  $3 million Sec. 1231 gain. 
B)  $3 million ordinary gain 
C)  $2 million ordinary income and $1 million Sec. 1231 gain. 
D)  $1.2 million ordinary income and $1.8 million Sec. 1231 gain. 
A)  $3 million Sec. 1231 gain. 
B)  $3 million ordinary gain 
C)  $2 million ordinary income and $1 million Sec. 1231 gain. 
D)  $1.2 million ordinary income and $1.8 million Sec. 1231 gain.

Question 5

Julie sells her manufacturing plant and land originally purchased in 1980.Accelerated depreciation had been taken on the building,but the building is now fully depreciated.Julie is in the 39.6% marginal tax bracket.Other information is as follows:
   
She has not sold any other assets this year.A review of her file indicates that the only asset dispositions in the past five years was a truck sold for a $10,000 loss last year.What are the tax consequences of the sale (type of gain; rates at which taxed)?

Accepted Answer

The answer of Julie sells her manufacturing plant and land...

Question 6

Sec.1231 property must satisfy a holding period of more than one year.

Accepted Answer

A) True 
 B)False

Question 7

Terry has sold equipment used in her business.She acquired the equipment three years ago for $50,000 and has recognized $30,000 of depreciation across the years in use.In order to recognize any Sec.1231 gain,she must sell the equipment for more than

Accepted Answer

A)  $0. 
B)  $20,000. 
C)  $30,000. 
D)  $50,000. 
A)  $0. 
B)  $20,000. 
C)  $30,000. 
D)  $50,000.

Question 8

Jaiyoun sells Sec.1231 property this year,resulting in a $4,000 gain.This is the first time he has disposed of any Sec.1231 property.Jaiyoun's tax rate is 10%.His tax on the Sec.1231 gain will be

Accepted Answer

A)  $0. 
B)  $400. 
C)  $600. 
D)  $1,120. 
A)  $0. 
B)  $400. 
C)  $600. 
D)  $1,120.

Question 9

A net Sec.1231 gain is treated as ordinary income to the extent of any nonrecaptured net Sec.1231 losses for the preceding five years.

Accepted Answer

A) True 
 B)False

Question 10

Daniel recognizes $35,000 of Sec.1231 gains and $25,000 of Sec.1231 losses during the current year.The only other Sec.1231 item was a $4,000 loss three years ago.This year,Daniel must report

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 11

In 1980,Artima Corporation purchased an office building for $400,000 for use in its business.The building is sold during the current year for $550,000.Total depreciation allowed for the building was $390,000; straight-line would have been $360,000.As result of the sale,how much Sec.1231 gain will Artima Corporation report?

Accepted Answer

A)  $150,000 
B)  $398,000 
C)  $510,000 
D)  $540,000 
A)  $150,000 
B)  $398,000 
C)  $510,000 
D)  $540,000

Question 12

This year Jenna had the gains and losses noted below on property,plant and equipment used in her business.Each asset had been held longer than one year.Jenna has not previously disposed of any business assets.
 
Jenna will recognize

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 13

During the current year,a corporation sells equipment for $300,000.The equipment cost $270,000 when purchased and placed in service two years ago and $60,000 of depreciation deductions were allowed.The results of the sale are

Accepted Answer

A)  ordinary income of $90,000. 
B)  Sec. 1231 gain of $90,000. 
C)  ordinary income of $60,000 and LTCG of $30,000. 
D)  ordinary income of $60,000 and Sec. 1231 gain of $30,000. 
A)  ordinary income of $90,000. 
B)  Sec. 1231 gain of $90,000. 
C)  ordinary income of $60,000 and LTCG of $30,000. 
D)  ordinary income of $60,000 and Sec. 1231 gain of $30,000.

Question 14

Maura makes a gift of a van to a local food bank run by a charity.Maura had used the van in her trade or business.The van has a FMV of $6,500; a cost of $31,000; and $27,000 depreciation claimed.What is the amount of Maura's charitable contribution deduction?

Accepted Answer

A)  $6,500 
B)  $31,000 
C)  $4,000 
D)  $2,500 
A)  $6,500 
B)  $31,000 
C)  $4,000 
D)  $2,500

Question 15

During the current year,Hugo sells equipment for $150,000.The equipment cost $175,000 when placed in service two years ago,and $55,000 of depreciation deductions were allowed.The results of the sale are

Accepted Answer

A)  LTCG of $30,000. 
B)  Sec. 1231 gain of $30,000. 
C)  Sec. 1245 ordinary income $30,000. 
D)  Sec. 1250 ordinary income of $30,000. 
A)  LTCG of $30,000. 
B)  Sec. 1231 gain of $30,000. 
C)  Sec. 1245 ordinary income $30,000. 
D)  Sec. 1250 ordinary income of $30,000.

Question 16

Yelenis,whose tax rate is 28%,sells one Sec.1231 asset this year,resulting in a $50,000 gain.Included in the $50,000 Sec.1231 gain is $30,000 of unrecaptured Sec.1250 gain.A review of Yelenis tax files for the past five years indicates one prior Sec.1231 sale which resulted in a $14,000 loss.The gain will be taxed as

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 17

The additional recapture under Sec.291 is 25% of the difference between the amount that would have been recaptured if the property was Sec.1245 property and the actual recapture under Sec.1250.

Accepted Answer

A) True 
 B)False

Question 18

If the accumulated depreciation on business equipment held longer than one year exceeds realized gain on the sale of the equipment,all of the realized gain will be treated as Sec.1231 gain.

Accepted Answer

A) True 
 B)False

Question 19

When a donee disposes of appreciated gift property,the recapture amount for the donee is computed by including the recapture amount attributable to the donor.

Accepted Answer

A) True 
 B)False

Question 20

Pierce has a $16,000 Sec.1231 loss,a $12,000 Sec.1231 gain,and a salary of $50,000.What is the treatment of these items in Pierce's AGI?

Accepted Answer

A)  Pierce has a LTCG of $12,000 and a net ordinary income of $34,000. 
B)  The 1231 gains and losses are treated as ordinary gains and losses making Pierce's AGI for the year $46,000. 
C)  Pierce has a $3,000 LTCL which is deductible for AGI making AGI $47,000. He also has a $1,000 LTCL carryover. 
D)  Pierce has net LTCG of $9,000 and $37,000 of net ordinary income. 
A)  Pierce has a LTCG of $12,000 and a net ordinary income of $34,000. 
B)  The 1231 gains and losses are treated as ordinary gains and losses making Pierce's AGI for the year $46,000. 
C)  Pierce has a $3,000 LTCL which is deductible for AGI making AGI $47,000. He also has a $1,000 LTCL carryover. 
D)  Pierce has net LTCG of $9,000 and $37,000 of net ordinary income.

Why did Congress establish favorable treatment for 1231 assets?

For a business,Sec.1231 property does not include

Sec.1231 property must satisfy a holding period of more than one year.

Terry has sold equipment used in her business.She acquired the equipment three years ago for $50,000 and has recognized $30,000 of depreciation across the years in use.In order to recognize any Sec.1231 gain,she must sell the equipment for more than

Jaiyoun sells Sec.1231 property this year,resulting in a $4,000 gain.This is the first time he has disposed of any Sec.1231 property.Jaiyoun's tax rate is 10%.His tax on the Sec.1231 gain will be

A net Sec.1231 gain is treated as ordinary income to the extent of any nonrecaptured net Sec.1231 losses for the preceding five years.

Daniel recognizes $35,000 of Sec.1231 gains and $25,000 of Sec.1231 losses during the current year.The only other Sec.1231 item was a $4,000 loss three years ago.This year,Daniel must report

This year Jenna had the gains and losses noted below on property,plant and equipment used in her business.Each asset had been held longer than one year.Jenna has not previously disposed of any business assets. Jenna will recognize

During the current year,a corporation sells equipment for $300,000.The equipment cost $270,000 when purchased and placed in service two years ago and $60,000 of depreciation deductions were allowed.The results of the sale are

Maura makes a gift of a van to a local food bank run by a charity.Maura had used the van in her trade or business.The van has a FMV of $6,500; a cost of $31,000; and $27,000 depreciation claimed.What is the amount of Maura's charitable contribution deduction?

During the current year,Hugo sells equipment for $150,000.The equipment cost $175,000 when placed in service two years ago,and $55,000 of depreciation deductions were allowed.The results of the sale are

The additional recapture under Sec.291 is 25% of the difference between the amount that would have been recaptured if the property was Sec.1245 property and the actual recapture under Sec.1250.

If the accumulated depreciation on business equipment held longer than one year exceeds realized gain on the sale of the equipment,all of the realized gain will be treated as Sec.1231 gain.

When a donee disposes of appreciated gift property,the recapture amount for the donee is computed by including the recapture amount attributable to the donor.

Pierce has a $16,000 Sec.1231 loss,a $12,000 Sec.1231 gain,and a salary of $50,000.What is the treatment of these items in Pierce's AGI?

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

Why did Congress establish favorable treatment for 1231 assets?

For a business,Sec.1231 property does not include

Sec.1231 property must satisfy a holding period of more than one year.

Terry has sold equipment used in her business.She acquired the equipment three years ago for $50,000 and has recognized $30,000 of depreciation across the years in use.In order to recognize any Sec.1231 gain,she must sell the equipment for more than

Jaiyoun sells Sec.1231 property this year,resulting in a $4,000 gain.This is the first time he has disposed of any Sec.1231 property.Jaiyoun's tax rate is 10%.His tax on the Sec.1231 gain will be

A net Sec.1231 gain is treated as ordinary income to the extent of any nonrecaptured net Sec.1231 losses for the preceding five years.

Daniel recognizes $35,000 of Sec.1231 gains and $25,000 of Sec.1231 losses during the current year.The only other Sec.1231 item was a $4,000 loss three years ago.This year,Daniel must report

This year Jenna had the gains and losses noted below on property,plant and equipment used in her business.Each asset had been held longer than one year.Jenna has not previously disposed of any business assets. Jenna will recognize

During the current year,a corporation sells equipment for $300,000.The equipment cost $270,000 when purchased and placed in service two years ago and $60,000 of depreciation deductions were allowed.The results of the sale are

Maura makes a gift of a van to a local food bank run by a charity.Maura had used the van in her trade or business.The van has a FMV of $6,500; a cost of $31,000; and $27,000 depreciation claimed.What is the amount of Maura's charitable contribution deduction?

During the current year,Hugo sells equipment for $150,000.The equipment cost $175,000 when placed in service two years ago,and $55,000 of depreciation deductions were allowed.The results of the sale are

The additional recapture under Sec.291 is 25% of the difference between the amount that would have been recaptured if the property was Sec.1245 property and the actual recapture under Sec.1250.

If the accumulated depreciation on business equipment held longer than one year exceeds realized gain on the sale of the equipment,all of the realized gain will be treated as Sec.1231 gain.

When a donee disposes of appreciated gift property,the recapture amount for the donee is computed by including the recapture amount attributable to the donor.

Pierce has a $16,000 Sec.1231 loss,a $12,000 Sec.1231 gain,and a salary of $50,000.What is the treatment of these items in Pierce's AGI?

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