Question 1

Which of the following assets held by a cash basis accounting firm is a § 1231 asset?

Accepted Answer

A) An account receivable from a client. 
B) A desk used in the business and held more than one year. 
C) An investment in Orange Company common stock. 
D) A computer used in the business, held more than one year, but fully depreciated under § 179 when acquired. 
E) b.and d. 
A) An account receivable from a client. 
B) A desk used in the business and held more than one year. 
C) An investment in Orange Company common stock. 
D) A computer used in the business, held more than one year, but fully depreciated under § 179 when acquired. 
E) b.and d.

Question 2

A retail building used in the business of a sole proprietor is sold on March 10, 2012, for $342,000. The building was acquired in 2002 for $400,000 and straight-line depreciation of $104,000 had been taken on the building. What is the maximum unrecaptured § 1250 gain from the disposition of this building?

Accepted Answer

A) $400,000. 
B) $322,000. 
C) $104,000. 
D) $26,000. 
E) None of the above. 
A) $400,000. 
B) $322,000. 
C) $104,000. 
D) $26,000. 
E) None of the above.

Question 3

Ranja acquires $200,000 face value corporate bonds for $186,000 when the bonds are issued.He holds the bonds as an investment for two years and then sells them for $198,000.He amortizes $2,000 of the OID.What tax issues does Ranja have with respect to these bonds?

Accepted Answer

The bonds have original issue discount o

Question 4

Laura purchased for $1,610 a $2,000 bond when it was issued two years ago.Laura amortized $200 of the original issue discount and then sold the bond for $1,800.Which of the following statements is correct?

Accepted Answer

A) Laura has $10 of long-term capital loss. 
B) Laura has $190 of long-term capital gain. 
C) Laura has no capital gain or loss. 
D) Laura has $190 of long-term capital loss. 
E) None of the above. 
A) Laura has $10 of long-term capital loss. 
B) Laura has $190 of long-term capital gain. 
C) Laura has no capital gain or loss. 
D) Laura has $190 of long-term capital loss. 
E) None of the above.

Question 5

An individual has the following recognized gains and losses from disposition of § 1231 assets (all the assets were vacant land): $15,000 gain, $10,000 loss, $25,000 gain, and $2,000 loss.The individual has a $5,500 § 1231 lookback loss.The individual also has a $16,000 net short-term capital loss from the disposition of stock.Which of the following statements is correct?

Accepted Answer

A) The taxpayer has $5,500 ordinary gain and $6,500 net long-term capital gain. 
B) The taxpayer has $12,000 net long-term capital gain. 
C) The taxpayer has $28,000 ordinary gain and $16,000 net short-term capital loss. 
D) The taxpayer has $5,500 ordinary loss and $6,500 net long-term capital gain. 
E) None of the above. 
A) The taxpayer has $5,500 ordinary gain and $6,500 net long-term capital gain. 
B) The taxpayer has $12,000 net long-term capital gain. 
C) The taxpayer has $28,000 ordinary gain and $16,000 net short-term capital loss. 
D) The taxpayer has $5,500 ordinary loss and $6,500 net long-term capital gain. 
E) None of the above.

Question 6

Hiram is a computer engineer and, while unemployed, invents a switching device for computer networks.He patents the device, but does not reduce it to practice.Hiram has a zero tax basis for the patent.In consideration of $800,000 plus a $1 royalty per device sold, Hiram assigns the patent to a computer manufacturing company.Hiram assigned all substantial rights in the patent.Which of the following is correct?

Accepted Answer

A) Hiram automatically has long-term capital gain from the lump sum payment, but not from the royalty payments. 
B) Hiram automatically has long-term capital gain from the royalty payments, but not from the lump sum payment. 
C) Hiram automatically has long-term capital gain from both the lump sum payment and the royalty payments. 
D) Hiram does not have automatic long-term capital gain from either the lump sum payment or the royalty payments. 
E) None of the above. 
A) Hiram automatically has long-term capital gain from the lump sum payment, but not from the royalty payments. 
B) Hiram automatically has long-term capital gain from the royalty payments, but not from the lump sum payment. 
C) Hiram automatically has long-term capital gain from both the lump sum payment and the royalty payments. 
D) Hiram does not have automatic long-term capital gain from either the lump sum payment or the royalty payments. 
E) None of the above.

Question 7

Section 1231 property includes nonpersonal use property where casualty losses exceed casualty gains for the taxable year.

Accepted Answer

A) True 
 B)False

Question 8

Assume a building is subject to § 1250 depreciation recapture because it was acquired before 1987 and accelerated depreciation was used to depreciate it. The building is destroyed in a fire and this is the taxpayer's only casualty or theft for the year. In which of the following situations could there be a § 1250 depreciation recapture gain?

Accepted Answer

A) There is a loss because the insurance recovery is less than the adjusted basis. 
B) There is a gain because the insurance recovery exceeds the adjusted basis. 
C) Because of the length of time the building has been held, there is no remaining additional depreciation. 
D) There is an insurance recovery, the adjusted basis of the building is zero, and straight-line depreciation was used. 
E) None of the above. 
A) There is a loss because the insurance recovery is less than the adjusted basis. 
B) There is a gain because the insurance recovery exceeds the adjusted basis. 
C) Because of the length of time the building has been held, there is no remaining additional depreciation. 
D) There is an insurance recovery, the adjusted basis of the building is zero, and straight-line depreciation was used. 
E) None of the above.

Question 9

Harold is a head of household, has $27,000 of taxable income in 2012 from non-capital gain or loss sources, and has the following capital gains and losses:
   What is Harold's taxable income and the tax on that taxable income?

Accepted Answer

Harold has taxable income of $

Question 10

On June 1, 2012, Brady purchased an option to buy 1,000 shares of General, Inc.at $40 per share.He purchased the option for $3,000.It was to remain in effect for five months.The market experienced a decline during the latter part of the year, so Brady decided to let the option lapse as of December 1, 2012.On his 2012 tax return, what should Brady report?

Accepted Answer

A) A $3,000 long-term capital loss. 
B) A $3,000 short-term capital loss. 
C) A $3,000 § 1231 loss. 
D) A $3,000 ordinary loss. 
E) None of the above. 
A) A $3,000 long-term capital loss. 
B) A $3,000 short-term capital loss. 
C) A $3,000 § 1231 loss. 
D) A $3,000 ordinary loss. 
E) None of the above.

Question 11

Section 1250 depreciation recapture will apply when accelerated depreciation was used on property used outside the United States and the property is sold at a gain.

Accepted Answer

A) True 
 B)False

Question 12

Jamison owned a rental building (but not the land) that was destroyed by a hurricane.The building was insured and Jamison has a $56,000 gain because his insurance recovery exceeded his adjusted basis for the building.Jamison does not intend to replace the building.Jamison had taken $45,000 of depreciation on the building, has no § 1231 lookback loss, has no other § 1231 transactions for the year, and has no Schedule D transactions for the year.What is the final nature of Jamison's gain for the year and what tax rate(s) apply to the gain?

Accepted Answer

Jamison initially has a casualty gain of

Question 13

Blue Company sold machinery for $45,000 on December 23, 2012.The machinery had been acquired on April 1, 2010, for $49,000 and its adjusted basis was $14,200.The § 1231 gain, § 1245 recapture gain, and § 1231 loss from this transaction are:

Accepted Answer

A) $0 § 1231 gain, $30,800 § 1245 recapture gain, $0 § 1231 loss. 
B) $0 § 1231 gain, $0 § 1245 recapture gain, $34,800 § 1231 loss. 
C) $4,000 § 1231 gain, $34,800 § 1245 recapture gain, $0 § 1231 loss. 
D) $0 § 1231 gain, $34,800 § 1245 recapture gain, $14,200 § 1231 loss. 
E) None of the above. 
A) $0 § 1231 gain, $30,800 § 1245 recapture gain, $0 § 1231 loss. 
B) $0 § 1231 gain, $0 § 1245 recapture gain, $34,800 § 1231 loss. 
C) $4,000 § 1231 gain, $34,800 § 1245 recapture gain, $0 § 1231 loss. 
D) $0 § 1231 gain, $34,800 § 1245 recapture gain, $14,200 § 1231 loss. 
E) None of the above.

Question 14

Section 1245 may apply to depreciable farm equipment.

Accepted Answer

A) True 
 B)False

Question 15

Since the Code section that defines "capital asset" says what is not a capital asset, other Code sections have to help determine what is and what is not a capital gain or loss.

Accepted Answer

A) True 
 B)False

Question 16

The only things that the grantee of an option may do with the option are exercise it or let it expire.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following comparisons is correct?

Accepted Answer

A) Corporations may carryback capital losses; individuals may not. 
B) Both corporation and individual long-term capital losses carryover as short-term capital losses. 
C) Corporations may carryforward capital losses indefinitely; individuals may only carryforward capital losses for five years. 
D) Both corporations and individuals may use an alternative tax rate on net capital gains. 
E) None of the above. 
A) Corporations may carryback capital losses; individuals may not. 
B) Both corporation and individual long-term capital losses carryover as short-term capital losses. 
C) Corporations may carryforward capital losses indefinitely; individuals may only carryforward capital losses for five years. 
D) Both corporations and individuals may use an alternative tax rate on net capital gains. 
E) None of the above.

Question 18

In early 2011, Wendy paid $66,000 for an option on a parcel of land she intended to hold as an investment.After a survey of the land (paid for by the grantor) determined that the parcel was much smaller than the grantor said it was, she let the option lapse when it expired in 2012 after 14 months.How should Wendy treat these events in 2011? 2012?

Accepted Answer

If an option holder (grantee) fails to e

Question 19

Which of the following creates potential § 1245 depreciation recapture and potential § 1231 gain?

Accepted Answer

A) Depreciable equipment held more than one year and sold for more than its original cost. 
B) Amortizable goodwill held more than one year and disposed of for less than its adjusted basis. 
C) Land held more than one year and sold for more than was paid for it. 
D) Inventory held more than one year and sold for more than was paid for it. 
E) None of the above. 
A) Depreciable equipment held more than one year and sold for more than its original cost. 
B) Amortizable goodwill held more than one year and disposed of for less than its adjusted basis. 
C) Land held more than one year and sold for more than was paid for it. 
D) Inventory held more than one year and sold for more than was paid for it. 
E) None of the above.

Question 20

The holding period of property given up in a like-kind exchange includes the holding period of the asset received if the property that has been exchanged is a capital asset.

Accepted Answer

A) True 
 B)False

Exam 14: Property Transactions: Capital Gains and Losses, 1231, Recapture Provisions

Which of the following assets held by a cash basis accounting firm is a § 1231 asset?

Ranja acquires $200,000 face value corporate bonds for $186,000 when the bonds are issued.He holds the bonds as an investment for two years and then sells them for $198,000.He amortizes $2,000 of the OID.What tax issues does Ranja have with respect to these bonds?

Laura purchased for $1,610 a $2,000 bond when it was issued two years ago.Laura amortized $200 of the original issue discount and then sold the bond for $1,800.Which of the following statements is correct?

Section 1231 property includes nonpersonal use property where casualty losses exceed casualty gains for the taxable year.

Harold is a head of household, has $27,000 of taxable income in 2012 from non-capital gain or loss sources, and has the following capital gains and losses: What is Harold's taxable income and the tax on that taxable income?

Section 1250 depreciation recapture will apply when accelerated depreciation was used on property used outside the United States and the property is sold at a gain.

Blue Company sold machinery for $45,000 on December 23, 2012.The machinery had been acquired on April 1, 2010, for $49,000 and its adjusted basis was $14,200.The § 1231 gain, § 1245 recapture gain, and § 1231 loss from this transaction are:

Section 1245 may apply to depreciable farm equipment.

Since the Code section that defines "capital asset" says what is not a capital asset, other Code sections have to help determine what is and what is not a capital gain or loss.

The only things that the grantee of an option may do with the option are exercise it or let it expire.

Which of the following comparisons is correct?

Which of the following creates potential § 1245 depreciation recapture and potential § 1231 gain?

The holding period of property given up in a like-kind exchange includes the holding period of the asset received if the property that has been exchanged is a capital asset.

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

A: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 1

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 2

Alternative Minimum Tax

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S: Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

Income Taxation of Trusts and Estates

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