Question 1

All tax gains and losses are ultimately characterized as either ordinary or capital.

Accepted Answer

A) True 
 B)False

Question 2

Brad sold a rental house that he owned for $250,000. Brad bought the rental house five years ago for $225,000 and has claimed $50,000 of depreciation expense. What is the amount and character of Brad's gain or loss?

Accepted Answer

A)  $25,000 ordinary and $50,000 unrecaptured §1250 gain. 
B)  $25,000 §1231 gain and $50,000 unrecaptured §1250 gain. 
C)  $75,000 ordinary gain. 
D)  $75,000 capital gain. 
E)  None of these. 
A)  $25,000 ordinary and $50,000 unrecaptured §1250 gain. 
B)  $25,000 §1231 gain and $50,000 unrecaptured §1250 gain. 
C)  $75,000 ordinary gain. 
D)  $75,000 capital gain. 
E)  None of these.

Question 3

Andrew, an individual, began business four years ago and has never sold a §1231 asset. Andrew owned each of the assets for several years. In the current year, Andrew sold the following business assets: $$\begin{array} { | l | r | r | r | } 
\hline \text { Asset } & \begin{array} { r } 
\text { Original } \
\text { Cost }
\end{array} & \begin{array} { r } 
\text { Accumulated } \
\text { Depreciation }
\end{array} & \text { GainLoss } \
\hline \text { Machinery } & \$ 12,000 & \$ 7,000 & \$ 6,000 \
\hline \text { Furniture } & 10,000 & 2,000 & 3,000 \
\hline \text { Building } & 90,000 & 20,000 & ( 5,000 ) \
\hline
\end{array}$$ Assuming Andrew's marginal ordinary income tax rate is 30 percent, what is the character of the gains and losses and what affect do they have on Andrew's tax liability?

Accepted Answer

$4,000 ordinary income and $1,200 of tax

Question 4

What is the primary purpose of a third-party intermediary in a deferred like-kind exchange?

Accepted Answer

A)  To facilitate finding replacement property. 
B)  To help acquire the replacement property. 
C)  To prevent the seller from receiving cash (boot) that will taint the transaction. 
D)  To certify the taxpayer's Form 8824. 
E)  All of these. 
A)  To facilitate finding replacement property. 
B)  To help acquire the replacement property. 
C)  To prevent the seller from receiving cash (boot) that will taint the transaction. 
D)  To certify the taxpayer's Form 8824. 
E)  All of these.

Question 5

Depreciation recapture changes both the amount and character of a gain.

Accepted Answer

A) True 
 B)False

Question 6

A net §1231 gain becomes ordinary while a net §1231 loss becomes long-term capital gain.

Accepted Answer

A) True 
 B)False

Question 7

Brandon, an individual, began business four years ago and has never sold a §1231 asset. Brandon owned each of the assets for several years. In the current year, Brandon sold the following business assets: $$\begin{array} { | l | r | r | r | } 
\hline \text { Asset } & \begin{array} { r } 
\text { Origina } \
\text { Cost }
\end{array} & \begin{array} { r } 
\text { Accumulated } \
\text { Depreciation }
\end{array} & \text { GainLoss } \
\hline \text { Machinery } & \$ 30,000 & \$ 7,000 & \$ 10,000 \
\hline \text { Computers } & 10,000 & 6,000 & ( 2,000 ) \
\hline \text { Building } & 90,000 & 20,000 & ( 2,000 ) \
\hline
\end{array}$$ Assuming Brandon's marginal ordinary income tax rate is 35 percent, what effect do the gains and losses have on Brandon's tax liability?

Accepted Answer

A)  $7,000 ordinary income, $1,000 §1231 loss and $2,100 tax liability. 
B)  $6,000 ordinary income and $2,100 tax liability. 
C)  $7,000 §1231 gain and $2,450 tax liability. 
D)  $7,000 §1231 gain and $1,050 tax liability. 
E)  None of these. 
A)  $7,000 ordinary income, $1,000 §1231 loss and $2,100 tax liability. 
B)  $6,000 ordinary income and $2,100 tax liability. 
C)  $7,000 §1231 gain and $2,450 tax liability. 
D)  $7,000 §1231 gain and $1,050 tax liability. 
E)  None of these.

Question 8

The general rule regarding the exchanged basis in the new property received in a like-kind exchange is:

Accepted Answer

A)  The basis is equal to the fair market value of the new property. 
B)  The basis is equal to the fair market value of the old property. 
C)  The basis is equal to the adjusted basis of the old property. 
D)  The basis is equal to the cost basis of the old property. 
E)  All of these. 
A)  The basis is equal to the fair market value of the new property. 
B)  The basis is equal to the fair market value of the old property. 
C)  The basis is equal to the adjusted basis of the old property. 
D)  The basis is equal to the cost basis of the old property. 
E)  All of these.

Question 9

Leesburg sold a machine for $2,200 on November 10th of the current year. The machine was purchased for $2,600. Leesburg had taken $1,200 of depreciation deductions on the machine through the date of the sale. What is Leesburg's gain or loss realized on the machine?

Accepted Answer

A)  $800 gain. 
B)  $1,000 gain. 
C)  $1,200 loss. 
D)  $1,400 loss. 
E)  None of these. 
A)  $800 gain. 
B)  $1,000 gain. 
C)  $1,200 loss. 
D)  $1,400 loss. 
E)  None of these.

Question 10

Which of the following sections does not recapture or recharacterize a taxpayer's gain?

Accepted Answer

A)  §1239. 
B)  §1250. 
C)  §1245. 
D)  §291. 
E)  None of these. 
A)  §1239. 
B)  §1250. 
C)  §1245. 
D)  §291. 
E)  None of these.

Question 11

Bateman Corporation sold an office building that it used in its business for $800,000. Bateman bought the building ten years ago for $600,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Bateman's gain or loss?

Accepted Answer

A)  $40,000 ordinary and $360,000 §1231 gain. 
B)  $200,000 ordinary and $200,000 §1231 gain. 
C)  $400,000 ordinary gain. 
D)  $400,000 capital gain. 
E)  None of these. 
A)  $40,000 ordinary and $360,000 §1231 gain. 
B)  $200,000 ordinary and $200,000 §1231 gain. 
C)  $400,000 ordinary gain. 
D)  $400,000 capital gain. 
E)  None of these.

Question 12

Suzanne, an individual, began business four years ago and has never sold a §1231 asset. Suzanne owned each of the assets for several years. In the current year, Suzanne sold the following business assets: $$\begin{array} { | l | r | r | r | } 
\hline \text { Asset } & \begin{array} { r } 
\text { Original } \
\text { Cost }
\end{array} & \begin{array} { r } 
\text { Accumulated } \
\text { Depreciation }
\end{array} & \text { GainLoss } \
\hline \text { Machinery } & \$ 12,000 & \$ 7,000 & \$ 6,000 \
\hline \text { Furniture } & 10,000 & 2,000 & ( 3,000 ) \
\hline \text { Building } & 90,000 & 20,000 & 15,000 \
\hline
\end{array}$$ Assuming Suzanne's marginal ordinary income tax rate is 35 percent, what is the character of the gains and losses and what affect do they have on Suzanne's tax liability?

Accepted Answer

$6,000 ordinary gain, $12,000 unrecaptur

Question 13

Which of the following realized gains results in a recognized gain?

Accepted Answer

A)  Farm machinery traded for farm machinery. 
B)  Sale to a related party. 
C)  Involuntary conversion. 
D)  Iowa cropland exchanged for a Minnesota warehouse. 
A)  Farm machinery traded for farm machinery. 
B)  Sale to a related party. 
C)  Involuntary conversion. 
D)  Iowa cropland exchanged for a Minnesota warehouse.

Question 14

Tyson had a parcel of undeveloped investment land that he wanted to trade for a warehouse to be used in his business. He found a buyer willing to pay him $450,000 for the land. He transferred the land to a third party intermediary on April 1st of the current year. On May 10th, with the help of a commercial real estate agent, Tyson identified two suitable warehouses. On August 10th he made an offer on the first building which was rejected. On August 13th an offer was accepted on the second warehouse. On September 23rd the third party intermediary transferred $500,000 ($450,000 from the original property plus $50,000 from Tyson) to the seller and conveyed title to the warehouse to Tyson. Explain whether the exchange of property qualifies as a like-kind exchange.

Accepted Answer

Yes, the exchange of property qualifies

Question 15

For an installment sale, the gross profit percentage is the gain recognized divided by the gain realized.

Accepted Answer

A) True 
 B)False

Question 16

Realized gains are recognized unless there is specific exception.

Accepted Answer

A) True 
 B)False

Question 17

Brandy sold a rental house that she owned for $150,000. Brandy bought the house four years ago for $140,000 and has claimed $25,000 of depreciation expense. What is the amount and character of Brandy's gain or loss? If this is the only asset Brandy sells during the year and her ordinary tax rate is 35 percent, how much tax would she owe on the sale of the rental house?

Accepted Answer

$10,000 §1231 gain and $25,000 unrecaptu

Question 18

The §1231 look-back rule applies whether there is a net gain or loss.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following gains does not result solely in an ordinary gain or loss?

Accepted Answer

A)  Sale of equipment held for less than a year. 
B)  Sale of inventory. 
C)  Sale of equipment where the gain realized exceeds the accumulated depreciation. 
D)  Sale of equipment where the accumulated depreciation exceeds the gain realized. 
E)  None of these. 
A)  Sale of equipment held for less than a year. 
B)  Sale of inventory. 
C)  Sale of equipment where the gain realized exceeds the accumulated depreciation. 
D)  Sale of equipment where the accumulated depreciation exceeds the gain realized. 
E)  None of these.

Question 20

A parcel of land is always a capital asset.

Accepted Answer

A) True 
 B)False

All tax gains and losses are ultimately characterized as either ordinary or capital.

Brad sold a rental house that he owned for $250,000. Brad bought the rental house five years ago for $225,000 and has claimed $50,000 of depreciation expense. What is the amount and character of Brad's gain or loss?

What is the primary purpose of a third-party intermediary in a deferred like-kind exchange?

Depreciation recapture changes both the amount and character of a gain.

A net §1231 gain becomes ordinary while a net §1231 loss becomes long-term capital gain.

The general rule regarding the exchanged basis in the new property received in a like-kind exchange is:

Leesburg sold a machine for $2,200 on November 10^th of the current year. The machine was purchased for $2,600. Leesburg had taken $1,200 of depreciation deductions on the machine through the date of the sale. What is Leesburg's gain or loss realized on the machine?

Which of the following sections does not recapture or recharacterize a taxpayer's gain?

Bateman Corporation sold an office building that it used in its business for $800,000. Bateman bought the building ten years ago for $600,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Bateman's gain or loss?

Which of the following realized gains results in a recognized gain?

For an installment sale, the gross profit percentage is the gain recognized divided by the gain realized.

Realized gains are recognized unless there is specific exception.

The §1231 look-back rule applies whether there is a net gain or loss.

Which of the following gains does not result solely in an ordinary gain or loss?

A parcel of land is always a capital asset.

An Introduction to Tax

Tax Compliance , the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual for Agi Deductions

Individual From Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Entities Overview

Corporate Formations and Operations

Corporate Nonliquidating and Liquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S: Corporations

Filters

Exam 11: Property Dispositions

All tax gains and losses are ultimately characterized as either ordinary or capital.

Brad sold a rental house that he owned for $250,000. Brad bought the rental house five years ago for $225,000 and has claimed $50,000 of depreciation expense. What is the amount and character of Brad's gain or loss?

What is the primary purpose of a third-party intermediary in a deferred like-kind exchange?

Depreciation recapture changes both the amount and character of a gain.

A net §1231 gain becomes ordinary while a net §1231 loss becomes long-term capital gain.

The general rule regarding the exchanged basis in the new property received in a like-kind exchange is:

Leesburg sold a machine for $2,200 on November 10th of the current year. The machine was purchased for $2,600. Leesburg had taken $1,200 of depreciation deductions on the machine through the date of the sale. What is Leesburg's gain or loss realized on the machine?

Which of the following sections does not recapture or recharacterize a taxpayer's gain?

Bateman Corporation sold an office building that it used in its business for $800,000. Bateman bought the building ten years ago for $600,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Bateman's gain or loss?

Which of the following realized gains results in a recognized gain?

For an installment sale, the gross profit percentage is the gain recognized divided by the gain realized.

Realized gains are recognized unless there is specific exception.

The §1231 look-back rule applies whether there is a net gain or loss.

Which of the following gains does not result solely in an ordinary gain or loss?

A parcel of land is always a capital asset.

An Introduction to Tax

Tax Compliance , the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual for Agi Deductions

Individual From Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Entities Overview

Corporate Formations and Operations

Corporate Nonliquidating and Liquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S: Corporations

Filters

Leesburg sold a machine for $2,200 on November 10^th of the current year. The machine was purchased for $2,600. Leesburg had taken $1,200 of depreciation deductions on the machine through the date of the sale. What is Leesburg's gain or loss realized on the machine?