Question 1

Ashburn reported a $105,000 net §1231 gain in Year 6. Assuming Ashburn reported $60,000 of nonrecaptured §1231 losses during Years 1 to 5, what amount of Ashburn's net §1231 gain for Year 6, if any, is treated as ordinary income?

Accepted Answer

A)  $0. 
B)  $45,000. 
C)  $60,000. 
D)  $105,000. 
E)  None of the choices are correct.

Question 2

Alpha sold machinery that it used in its business to Beta, a related entity, for $40,050. Beta used the machinery in its business. Alpha bought the machinery a few years ago for $49,950 and has claimed $30,050 of depreciation expense. What is the amount and character of Alpha's gain?

Accepted Answer

A)  $20,150 ordinary income under §1239. 
B)  $10,000 ordinary gain and $10,150 §1231 gain. 
C)  $20,150 §1231 gain. 
D)  $20,150 capital gain. 
E)  None of the choices are correct.

Question 3

Assets held for investment and personal use assets are examples of capital assets.

Accepted Answer

A) True 
 B)False

Question 4

Only accelerated depreciation is recaptured for §1245 assets.

Accepted Answer

A) True 
 B)False

Question 5

Bateman Corporation sold an office building that it used in its business for $800,000. Bateman bought the building 10 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 the choices are correct.

Question 6

Andrea sold a piece of machinery she used in her business for nine months. The amount realized was $50,180 and the adjusted basis was $55,900. What is Andrea's gain or loss realized, and what is the character of the gain or loss?

Accepted Answer

The answer of Andrea sold a piece of machinery she...

Question 7

Kristi had a business building destroyed in an earthquake. The old building was purchased for $250,000, and $80,000 of depreciation deductions had been taken. Her insurance proceeds were $550,000. Although the replacement property was much larger and nicer than her old building, Kristi's new property qualified as replacement property. She acquired the new property 13 months after the earthquake for $620,000. What is the amount of Kristi's realized gain and recognized gain and the basis in her new property?

Accepted Answer

The answer of Kristi had a business building destroyed in...

Question 8

Unrecaptured §1250 gains apply only to individuals.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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.

Question 11

Boot is not like-kind property involved in a like-kind exchange.

Accepted Answer

A) True 
 B)False

Question 12

Sadie sold 10 shares of stock to her brother, George, for $500 16 months ago. Sadie had purchased the stock for $600 two years earlier. If George sells the stock for $700, what are the amount and character of his recognized gain or loss in the current year?

Accepted Answer

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

Question 13

Which of the following is not true regarding §1239?

Accepted Answer

A)  It only applies to related taxpayers. 
B)  It only applies to gains on sales of depreciable property. 
C)  It only applies to gains on sales of nonresidential real property. 
D)  It does not apply to losses. 
E)  None of the choices are correct.

Question 14

Odintz traded land for land. Odintz originally purchased its land for $150,000. The land received was purchased for $200,000 and was subject to a mortgage of $50,000 that was paid off before the transfer. The fair market value of the new land is $240,000. What is Odintz's adjusted basis in the new land after the exchange?

Accepted Answer

The answer of Odintz traded land for land. Odintz originally...

Question 15

Redoubt LLC exchanged an office building used in its business for a rental house. Redoubt originally purchased the building for $80,110, and it had an adjusted basis of $52,890 at the time of the exchange. The rental house had a fair market value of $62,110. Redoubt also received $7,055 of cash in the transaction. What is Redoubt's gain or loss recognized on the exchange? What is Redoubt's basis in the rental house?

Accepted Answer

The answer of Redoubt LLC exchanged an office building used...

Question 16

Unrecaptured §1250 gain is taxed at a maximum rate of 25 percent.

Accepted Answer

A) True 
 B)False

Question 17

Sunshine LLC sold furniture for $75,950. Sunshine bought the furniture for $89,810 several years ago and has claimed $24,905 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 $75,950. Sunshine...

Question 18

Gainesville LLC sold the following business assets during the current year: (1) machinery, $20,000 cost basis, $4,000 depreciation, $22,000 proceeds; (2) automobile, $15,000 cost basis, $12,000 depreciation, $7,000 proceeds; (3) equipment, $15,000 cost basis, $10,000 depreciation, $4,000 proceeds; (4) computer equipment, $35,000 cost basis, $16,000 depreciation, $15,000 proceeds; (5) Winchester had unrecaptured §1231 losses of $5,000 in the prior five 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 19

Which of the following does not ultimately result in a capital gain or loss?

Accepted Answer

A)  Sale of a personal use asset. 
B)  Sale of inventory. 
C)  Gain on equipment used in a trade or business and held for more than one year, if it is the only asset sale during the year. 
D)  Sale of capital stock in another company. 
E)  None of the choices are correct.

Question 20

Sarah sold 1,000 shares of stock to her brother, David, for $18,900 more than a year ago. Sarah had purchased the stock for $20,450 several years earlier. What is the amount and character of David's recognized gain or loss in the current year if he sells the stock for either $15,225 or $25,225?

Accepted Answer

The answer of Sarah sold 1,000 shares of stock to...

Exam 3: Property Dispositions

Ashburn reported a $105,000 net §1231 gain in Year 6. Assuming Ashburn reported $60,000 of nonrecaptured §1231 losses during Years 1 to 5, what amount of Ashburn's net §1231 gain for Year 6, if any, is treated as ordinary income?

Alpha sold machinery that it used in its business to Beta, a related entity, for $40,050. Beta used the machinery in its business. Alpha bought the machinery a few years ago for $49,950 and has claimed $30,050 of depreciation expense. What is the amount and character of Alpha's gain?

Assets held for investment and personal use assets are examples of capital assets.

Only accelerated depreciation is recaptured for §1245 assets.

Bateman Corporation sold an office building that it used in its business for $800,000. Bateman bought the building 10 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?

Andrea sold a piece of machinery she used in her business for nine months. The amount realized was $50,180 and the adjusted basis was $55,900. What is Andrea's gain or loss realized, and what is the character of the gain or loss?

Unrecaptured §1250 gains apply only to individuals.

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

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

Boot is not like-kind property involved in a like-kind exchange.

Sadie sold 10 shares of stock to her brother, George, for $500 16 months ago. Sadie had purchased the stock for $600 two years earlier. If George sells the stock for $700, what are the amount and character of his recognized gain or loss in the current year?

Which of the following is not true regarding §1239?

Unrecaptured §1250 gain is taxed at a maximum rate of 25 percent.

Sunshine LLC sold furniture for $75,950. Sunshine bought the furniture for $89,810 several years ago and has claimed $24,905 of depreciation expense on the machine. What is the amount and character of Sunshine's gain or loss?

Which of the following does not ultimately result in a capital gain or loss?

Sarah sold 1,000 shares of stock to her brother, David, for $18,900 more than a year ago. Sarah had purchased the stock for $20,450 several years earlier. What is the amount and character of David's recognized gain or loss in the current year if he sells the stock for either $15,225 or $25,225?