Question 1

Which of the following is not true regarding an asset's adjusted basis?

Accepted Answer

A)  Tax adjusted basis is usually greater than book adjusted basis. 
B)  Tax adjusted basis is usually less than book adjusted basis. 
C)  Adjusted basis is cost basis less cost recovery deductions. 
D)  Tax adjusted basis may change over time. 
A)  Tax adjusted basis is usually greater than book adjusted basis. 
B)  Tax adjusted basis is usually less than book adjusted basis. 
C)  Adjusted basis is cost basis less cost recovery deductions. 
D)  Tax adjusted basis may change over time. A

Question 2

In the current year, Raven sold machinery with a fair market value of $200,000. The machinery's original basis was $190,000 and Raven's accumulated depreciation on the machinery was $40,000, so its adjusted basis to Raven was $150,000. Raven received $50,000 in the current year and a note paying Raven $75,000 a year for two years beginning in next year. What is the amount and character of the gain that Raven will recognize in the current year?

Accepted Answer

$42,500 gain recognized: $40,000 ordinary income (§1245 depreciation recapture) and $2,500 §1231 gain.
Depreciation recapture cannot be deferred under the installment method. As a result, $40,000 depreciation recapture (lesser of $50,000 gain realized or $40,000 depreciation taken) is recognized immediately and is added back to the adjusted basis of the property for calculating the gross profit percentage. The gain recognized in each year is calculated as follows; the gross profit percentage is multiplied by the amount realized in each year to determine the recognize gain. The gross profit percentage is the gain realized over the contract price. The $10,000 gain realized is the $200,000 amount realized ($50,000 cash plus $150,000 note) less the $190,000 adjusted basis ($150,000 adjusted basis plus the $40,000 of depreciation recapture). In the current year, the $50,000 proceeds (cash) is multiplied by the five percent gross profit percentage ($10,000/$200,000) to determine the $2,500 §1231 gain recognized in the current year.

Question 3

How long after the initial exchange does a taxpayer have to identify replacement property in a like-kind exchange?

Accepted Answer

A)  The like-kind property to be received must be identified within 45 days. 
B)  The like-kind property to be received must be identified by the earlier of 45 days or the last day of the taxpayer's taxable year. 
C)  The like-kind property to be received must be identified within 180 days. 
D)  There is no deadline for the identification of replacement property. 
E)  All of the choices are correct. 
A)  The like-kind property to be received must be identified within 45 days. 
B)  The like-kind property to be received must be identified by the earlier of 45 days or the last day of the taxpayer's taxable year. 
C)  The like-kind property to be received must be identified within 180 days. 
D)  There is no deadline for the identification of replacement property. 
E)  All of the choices are correct. A

Question 4

An asset's tax adjusted basis is usually greater than its book adjusted basis.

Accepted Answer

A) True 
 B)False

Question 5

Only accelerated depreciation is recaptured for §1245 assets.

Accepted Answer

A) True 
 B)False

Question 6

A taxpayer that receives boot in a like-kind exchange resulting in a gain recognizes as gain the lesser of the fair market value of the boot received or the gain realized.

Accepted Answer

A) True 
 B)False

Question 7

Sunshine LLC sold furniture for $75,000. Sunshine bought the furniture for $90,000 several years ago and has claimed $25,000 of depreciation expense on the machine. What is the amount and character of Sunshine's gain or loss?

Accepted Answer

$10,000 ordinary gain.
§1245 r

Question 8

An installment sale is any sale where at least a portion of the sales proceeds is received in a subsequent taxable year.

Accepted Answer

A) True 
 B)False

Question 9

For a like-kind exchange, realized gain is deferred if the exchange is solely for like-kind property.

Accepted Answer

A) True 
 B)False

Question 10

The gain or loss realized on the sale of an asset is always recognized for tax purposes.

Accepted Answer

A) True 
 B)False

Question 11

§1231 assets include all assets used in a trade or business.

Accepted Answer

A) True 
 B)False

Question 12

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 the choices are correct. 
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 the choices are correct.

Question 13

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:
   Assuming Andrew's marginal ordinary income tax rate is 32 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 $1,280 of tax

Question 14

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 the choices are correct. 
A)  §1239. 
B)  §1250. 
C)  §1245. 
D)  §291. 
E)  None of the choices are correct.

Question 15

When does unrecaptured §1250 gains apply?

Accepted Answer

A)  When the taxpayer makes the election. 
B)  It applies only when non-corporate taxpayers sell depreciable real property at a gain. 
C)  It applies when §1245 recapture trumps §1250 recapture. 
D)  It applies only when real property purchased before 1986 is sold at a gain. 
E)  None of the choices are correct. 
A)  When the taxpayer makes the election. 
B)  It applies only when non-corporate taxpayers sell depreciable real property at a gain. 
C)  It applies when §1245 recapture trumps §1250 recapture. 
D)  It applies only when real property purchased before 1986 is sold at a gain. 
E)  None of the choices are correct.

Question 16

Koch traded machine 1 for machine 2 when the fair market value of both machines was $50,000. Koch originally purchased machine 1 for $75,000 and machine 1's adjusted basis was $40,000 at the time of the exchange. Machine 2's seller purchased it for $65,000 and machine 2's adjusted basis was $55,000 at the time of the exchange. What is Koch's adjusted basis in machine 2 after the exchange?

Accepted Answer

A)  $40,000. 
B)  $50,000. 
C)  $55,000. 
D)  $75,000. 
E)  None of the choices are correct. 
A)  $40,000. 
B)  $50,000. 
C)  $55,000. 
D)  $75,000. 
E)  None of the choices are correct.

Question 17

Peroni Corporation sold a parcel of land valued at $300,000. Its basis in the land was $250,000. For the land, Peroni received $150,000 in cash in the current year and a note providing Peroni with $150,000 in the subsequent year. What is Peroni's recognized gain in the current and subsequent year, respectively?

Accepted Answer

A)  $0, $50,000. 
B)  $10,000, $40,000. 
C)  $25,000, $25,000. 
D)  $50,000, $0. 
E)  None of the choices are correct. 
A)  $0, $50,000. 
B)  $10,000, $40,000. 
C)  $25,000, $25,000. 
D)  $50,000, $0. 
E)  None of the choices are correct.

Question 18

Mary exchanged an office building used in her business for some land. Mary originally purchased the building for $45,000 and it had an adjusted basis of $20,000 at the time of the exchange. The land had a fair market value of $40,000. Mary also gave $4,000 to the in the transaction. What is Mary's adjusted basis in the land after the exchange?

Accepted Answer

A)  $20,000. 
B)  $24,000. 
C)  $36,000. 
D)  $40,000. 
E)  None of the choices are correct. 
A)  $20,000. 
B)  $24,000. 
C)  $36,000. 
D)  $40,000. 
E)  None of the choices are correct.

Question 19

Silver sold machinery to Gold, a related entity, which it used in its business for $55,000. Silver bought the equipment a few years ago for $50,000 and has claimed $15,000 of depreciation expense. What is the amount and character of Silver's gain?

Accepted Answer

$20,000 of ordinary income und

Question 20

Buzz Corporation sold an office building that it used in its business for $500,000. Buzz bought the building ten years ago for $650,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Buzz's gain or loss?

Accepted Answer

$10,000 ordinary and $40,000 §

Which of the following is not true regarding an asset's adjusted basis?

How long after the initial exchange does a taxpayer have to identify replacement property in a like-kind exchange?

An asset's tax adjusted basis is usually greater than its book adjusted basis.

Only accelerated depreciation is recaptured for §1245 assets.

A taxpayer that receives boot in a like-kind exchange resulting in a gain recognizes as gain the lesser of the fair market value of the boot received or the gain realized.

Sunshine LLC sold furniture for $75,000. Sunshine bought the furniture for $90,000 several years ago and has claimed $25,000 of depreciation expense on the machine. What is the amount and character of Sunshine's gain or loss?

An installment sale is any sale where at least a portion of the sales proceeds is received in a subsequent taxable year.

For a like-kind exchange, realized gain is deferred if the exchange is solely for like-kind property.

The gain or loss realized on the sale of an asset is always recognized for tax purposes.

§1231 assets include all assets used in a trade or business.

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

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

When does unrecaptured §1250 gains apply?

Silver sold machinery to Gold, a related entity, which it used in its business for $55,000. Silver bought the equipment a few years ago for $50,000 and has claimed $15,000 of depreciation expense. What is the amount and character of Silver's gain?

Buzz Corporation sold an office building that it used in its business for $500,000. Buzz bought the building ten years ago for $650,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Buzz's gain or loss?

An Introduction to Tax

Tax Compliance, the IRS, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

Exam 11: Property Dispositions

Which of the following is not true regarding an asset's adjusted basis?

How long after the initial exchange does a taxpayer have to identify replacement property in a like-kind exchange?

An asset's tax adjusted basis is usually greater than its book adjusted basis.

Only accelerated depreciation is recaptured for §1245 assets.

A taxpayer that receives boot in a like-kind exchange resulting in a gain recognizes as gain the lesser of the fair market value of the boot received or the gain realized.

Sunshine LLC sold furniture for $75,000. Sunshine bought the furniture for $90,000 several years ago and has claimed $25,000 of depreciation expense on the machine. What is the amount and character of Sunshine's gain or loss?

An installment sale is any sale where at least a portion of the sales proceeds is received in a subsequent taxable year.

For a like-kind exchange, realized gain is deferred if the exchange is solely for like-kind property.

The gain or loss realized on the sale of an asset is always recognized for tax purposes.

§1231 assets include all assets used in a trade or business.

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

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

When does unrecaptured §1250 gains apply?

Silver sold machinery to Gold, a related entity, which it used in its business for $55,000. Silver bought the equipment a few years ago for $50,000 and has claimed $15,000 of depreciation expense. What is the amount and character of Silver's gain?

Buzz Corporation sold an office building that it used in its business for $500,000. Buzz bought the building ten years ago for $650,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Buzz's gain or loss?

An Introduction to Tax

Tax Compliance, the IRS, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters