Question 1

Sadie sold 10 shares of stock to her brother, George, for $500 sixteen months ago. Sadie had purchased the stock for $600 two years earlier. If George sells the stock for $700 six months later, what is the amount and character of his recognized gain or loss in thecurrent year?

Accepted Answer

A)  $0. 
B)  $100 long-term capital gain. 
C)  $200 short-term capital gain. 
D)  $100 short-term capital gain. 
E)  None of the choices are correct.

Question 2

Which of the following sections recaptures or recharacterizes only corporate taxpayer's gains?

Accepted Answer

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

Question 3

Accounts receivable and inventory are examples of ordinary assets.

Accepted Answer

A) True 
 B)False

Question 4

Gainesville LLC sold the following business assets during the current year: (1) machinery, $20,000 cost basis, $4,000 depreciation, proceeds $22,000; (2) automobile, $15,000 cost basis, $12,000 depreciation, proceeds $7,000; (3) equipment, $15,000 cost basis, $10,000 depreciation, proceeds$4,000; (4) computer equipment, $35,000 cost basis, $16,000 depreciation, proceeds $15,000; (5) Winchester had unrecaptured §1231 losses of $5,000 in the prior 5 years. What is the amount and character of Winchester's gains and losses before the 1231 netting process?

Accepted Answer

The answer of Gainesville LLC sold the following business assets...

Question 5

Residential real property is not like-kind with non-residential real property.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

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

Question 7

Luke sold land valued at $210,000. His original basis in the land was $180,000. For the land, Luke received $60,000 in cash in the current year and a note providing $150,000 in the subsequent year. What is Luke's recognized gain in the current and subsequent year, respectively?

Accepted Answer

The answer of Luke sold land valued at $210,000. His...

Question 8

Which of the following is true regarding disallowed losses between related taxpayers?

Accepted Answer

A)  The holding period of the seller carries over to the buyer. 
B)  The seller's realized loss is deferred until the buyer sells the assets. 
C)  The related person always receives a carryover basis. 
D)  The tax laws essentially treat related parties as the same taxpayer. 
E)  None of the choices are correct.

Question 9

After application of the look-back rule, net §1231 gains become capital while net §1231 losses become ordinary.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is not usually included in an asset's tax basis?

Accepted Answer

A)  Shipping costs 
B)  Sales tax 
C)  Installation costs 
D)  Purchase price 
E)  None of the choices are correct.

Question 11

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 ofBrandy's gain or loss?

Accepted Answer

The answer of Brandy sold a rental house that she...

Question 12

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 13

Which of the following is how gain or loss realized is calculated?

Accepted Answer

A)  Cash less cost recovery. 
B)  Amount realized less adjusted basis. 
C)  Cost basis less cost recovery. 
D)  Cash less selling costs. 
E)  None of the choices are correct.

Question 14

A loss realized for property destroyed in a hurricane is deferred under the involuntary conversion rules.

Accepted Answer

A) True 
 B)False

Question 15

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

The answer of Sunshine LLC sold furniture for $75,000. Sunshine...

Question 16

Bozeman sold equipment that it uses in its business for $80,000. Bozeman bought the equipment two years ago for $75,000 and has claimed $20,000 of depreciation expense. What is the amount and character of Bozeman's gain or loss?

Accepted Answer

A)  $20,000 ordinary gain, and $5,000 §1231 gain. 
B)  $25,000 capital gain. 
C)  $25,000 §1231 gain. 
D)  $5,000 ordinary gain, and $20,000 §1231 gain. 
E)  None of the choices are correct.

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Alexandra sold equipment that she uses in her business for $100,000. Alexandra bought theequipment two years ago for $90,000 and has claimed $25,000 of depreciation expense. What is the amount and character of Alexandra's gain or loss?

Accepted Answer

The answer of Alexandra sold equipment that she uses in...

Question 19

Taxpayers can recognize a taxable gain on the sale of an asset even though an asset's real economic value has declined.

Accepted Answer

A) True 
 B)False

Question 20

The §1231 look-back rule recharacterizes §1231 gains if §1231 losses have created ordinary losses in the last 5 years.

Accepted Answer

A) True 
 B)False

Exam 11: Property Dispositions

Sadie sold 10 shares of stock to her brother, George, for $500 sixteen months ago. Sadie had purchased the stock for $600 two years earlier. If George sells the stock for $700 six months later, what is the amount and character of his recognized gain or loss in thecurrent year?

Which of the following sections recaptures or recharacterizes only corporate taxpayer's gains?

Accounts receivable and inventory are examples of ordinary assets.

Residential real property is not like-kind with non-residential real property.

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

Luke sold land valued at $210,000. His original basis in the land was $180,000. For the land, Luke received $60,000 in cash in the current year and a note providing $150,000 in the subsequent year. What is Luke's recognized gain in the current and subsequent year, respectively?

Which of the following is true regarding disallowed losses between related taxpayers?

After application of the look-back rule, net §1231 gains become capital while net §1231 losses become ordinary.

Which of the following is not usually included in an asset's tax basis?

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 ofBrandy's gain or loss?

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.

Which of the following is how gain or loss realized is calculated?

A loss realized for property destroyed in a hurricane is deferred under the involuntary conversion rules.

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?

Bozeman sold equipment that it uses in its business for $80,000. Bozeman bought the equipment two years ago for $75,000 and has claimed $20,000 of depreciation expense. What is the amount and character of Bozeman's gain or loss?

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

Alexandra sold equipment that she uses in her business for $100,000. Alexandra bought theequipment two years ago for $90,000 and has claimed $25,000 of depreciation expense. What is the amount and character of Alexandra's gain or loss?

Taxpayers can recognize a taxable gain on the sale of an asset even though an asset's real economic value has declined.

The §1231 look-back rule recharacterizes §1231 gains if §1231 losses have created ordinary losses in the last 5 years.