Exam 13: Property Transactions: Sec1231 and Recapture

Gains and losses from involuntary conversions of property used in a trade or business generally are classified as capital gains and losses.

Any gain or loss resulting from the sale or disposition of depreciable property used in trade or business and held one year or less is considered ordinary.

An individual taxpayer sells a business building placed in service five years ago and recognizes a gain.This is the taxpayer's first and only sale of Sec.1231 property.Since the gain will be treated as LTCG,the details of the sale should be reported on Schedule D of Form 1040.

Pete sells equipment for $15,000 to Marcel,his son.The equipment cost $20,000 and has accumulated depreciation of $12,000.Marcel will use the equipment in his business. a.What is the amount and character of Pete's gain on the sale? b.How does your answer change if the sales price is $22,000?

What is the purpose of Sec.1245 and what is its significance?

When corporate and noncorporate taxpayers sell real property placed in service after 1986,all depreciation taken will be taxed at a maximum rate of 25%.

A corporation sold a warehouse during the current year.The straight-line depreciation method was used.Information about the building is presented below: How much gain should the corporation report as Sec.1231 gain?

If realized gain from disposition of business equipment exceeds total depreciation or cost recovery,a portion of the gain will receive Sec.1231 treatment if the equipment's holding period is more than one year.

Blair,whose tax rate is 28%,sells one tract of land at a gain of $29,000 and another tract of land at a gain of $11,000.Both tracts of land are Sec.1231 property.She has never had any other Sec.1231 transactions.How are the gains taxed?

During the current year,George recognizes a $30,000 Sec.1231 gain on sale of land and a $18,000 Sec.1231 loss on the sale of land.Prior to this,George's only Sec.1231 item was a $14,000 loss six years ago.George must report a

The purpose of Sec.1245 is to eliminate the advantage taxpayers would have if they were able to reduce ordinary income by depreciation deductions and also receive favorable Sec.1231 treatment when the asset was sold.

Jacqueline dies while owning a building with a $1,000,000 FMV.The building is classified as Sec.1245 property acquired in 1985 for $850,000.Cost-recovery deductions of $850,000 have been claimed.Pam inherits the property. a.What is the amount of Pam's basis in the property? b.What is the amount of cost-recovery deductions that Pam must recover if she immediately sells the building?

An unincorporated business sold two warehouses during the current year.The straight-line depreciation method was used for the first building and the accelerated method (ACRS) was used for the second building.Information about those buildings is presented below. How much gain from these sales should be reported as Sec.1231 gain and ordinary income due to depreciation recapture by the owner of the business?

Jeremy has $18,000 of Sec.1231 gains and $23,000 of Sec.1231 losses.The gains and losses are characterized as

A taxpayer has a gain on Sec.1245 property.None of the gain will be treated as Sec.1231 gain unless the sale price exceeds the original cost.

Sec.1231 property will generally have all the following characteristics except

A taxpayer purchased a factory building in 1985 for $800,000.After claiming ACRS-accelerated depreciation of $800,000,she sells the asset for $1,000,000 during the current year.No payment is received during the current year,and the $1,000,000 balance to be paid with interest at the interest rate in four annual payments beginning one year from date of sale.The installment sales method is adopted.How much ordinary income is recognized in the current year?

In addition to the normal recapture rules of Sec.1250,corporations which sell depreciable real estate are subject to additional recapture rules of Sec.291.

Echo Corporation plans to sell a small building to Nate,its 65% shareholder.The building was placed in service five years ago.An independent appraisal will be obtained to set the selling price at an appropriate market price,and a $50,000 gain is expected to result.The only asset previously sold by Echo was a stock investment five years ago which resulted in a $40,000 loss.If the sale of the building closes before year-end,the gain on the building will allow recognition of the capital loss carryover before it expires.

Gain recognized on the sale or exchange of property between related parties is capital if the property is subject to depreciation in the hands of the transferee.