Question 1

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 2

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

Accepted Answer

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

Question 3

Silver sold machinerythat it used in its business to Gold, a related entity, for $54,700. Silver bought the equipment a few years ago for $50,300 and has claimed $14,700 of depreciation expense. What is the amount and character of Silver's gain?

Accepted Answer

The answer of Silver sold machinerythat it used in its...

Question 4

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

The answer of Andrew, an individual, began business four years...

Question 5

Kristi had a business building destroyed in an earthquake. The old building was purchased for $252,500, and $80,500 of depreciation deductions had been taken. Her insurance proceeds were $551,250. 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 $620,500. 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 6

The sale for more than the original cost basis (before depreciation) of machinery used in a trade or business and held for more than one year results in which of the following types of gain or loss?

Accepted Answer

A)  Capital and ordinary. 
B)  Ordinary only. 
C)  Capital and §1231. 
D)  §1245 and §1231. 
E)  None of the choices are correct.

Question 7

The gain or loss realized on the sale of an asset is the amount realized less the adjusted basis.

Accepted Answer

A) True 
 B)False

Question 8

A parcel of land is always a capital asset.

Accepted Answer

A) True 
 B)False

Question 9

Buzz Corporation sold an office building that it used in its business for $500,000. Buzz bought the building 10 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

The answer of Buzz Corporation sold an office building that...

Question 10

Butte sold a machine to a machine dealer for $50,000. Butte bought the machine for $55,000 several years ago and has claimed $12,500 of depreciation expense on the machine. What is the amount and character of Butte's gain or loss?

Accepted Answer

A)  $7,500 §1231 loss. 
B)  $5,000 §1231 loss. 
C)  $7,500 ordinary gain. 
D)  $7,500 capital gain. 
E)  None of the choices are correct.

Question 11

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:
  Assuming Suzanne'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 Suzanne's tax liability?

Accepted Answer

The answer of Suzanne, an individual, began business four years...

Question 12

Koch traded Machine 1 for Machine 2 when the fair market value of both machines was $49,150. Koch originally purchased Machine 1 for $76,700, and Machine 1's adjusted basis was $40,850 at the time of the exchange. Machine 2's seller purchased it for $64,150 and Machine 2's adjusted basis was $55,850 at the time of the exchange. What is Koch's adjusted basis in machine 2 after the exchange?

Accepted Answer

A)  $40,850. 
B)  $49,150. 
C)  $55,850. 
D)  $76,700. 
E)  None of the choices are correct.

Question 13

Alpha sold machinery that it used in its business to Beta, a related entity, for $40,000. Beta used the machinery in its business. Alpha bought the machinery a few years ago for $50,000 and has claimed $30,000 of depreciation expense. What is the amount and character of Alpha's gain?

Accepted Answer

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

Question 14

Silver sold machinerythat it used in its business to Gold, a related entity, 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

The answer of Silver sold machinerythat it used in its...

Question 15

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 16

Why does §1250 recapture generally no longer apply?

Accepted Answer

A)  Congress repealed the code section. 
B)  Real property is depreciated using the straight-line method after 1986. 
C)  §1245 recapture trumps §1250 recapture. 
D)  Because unrecaptured §1250 gains now apply to all taxpayers instead. 
E)  None of the choices are correct.

Question 17

Sarah sold 1,000 shares of stock to her brother, David, for $18,000 more than a year ago. Sarah had purchased the stock for $20,000 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 $15,000 or $25,000?

Accepted Answer

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

Question 18

Manassas purchased a computer several years ago for $2,800. On November 10^th of the current year, the computer was worth $ 920. If $1,120 of depreciation deductions had been taken, what is Manassas's tax-adjusted basis for the computer?

Accepted Answer

The answer of Manassas purchased a computer several years ago...

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A)  Farmland traded for an office building. 
B)  Sale to a related party. 
C)  Land seized for widening streets. 
D)  Iowa cropland exchanged for a Minnesota warehouse.

Exam 3: Property Dispositions

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

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

Silver sold machinerythat it used in its business to Gold, a related entity, for $54,700. Silver bought the equipment a few years ago for $50,300 and has claimed $14,700 of depreciation expense. What is the amount and character of Silver's gain?

The sale for more than the original cost basis (before depreciation) of machinery used in a trade or business and held for more than one year results in which of the following types of gain or loss?

The gain or loss realized on the sale of an asset is the amount realized less the adjusted basis.

A parcel of land is always a capital asset.

Buzz Corporation sold an office building that it used in its business for $500,000. Buzz bought the building 10 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?

Butte sold a machine to a machine dealer for $50,000. Butte bought the machine for $55,000 several years ago and has claimed $12,500 of depreciation expense on the machine. What is the amount and character of Butte's gain or loss?

Alpha sold machinery that it used in its business to Beta, a related entity, for $40,000. Beta used the machinery in its business. Alpha bought the machinery a few years ago for $50,000 and has claimed $30,000 of depreciation expense. What is the amount and character of Alpha's gain?

Silver sold machinerythat it used in its business to Gold, a related entity, 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?

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

Why does §1250 recapture generally no longer apply?

Sarah sold 1,000 shares of stock to her brother, David, for $18,000 more than a year ago. Sarah had purchased the stock for $20,000 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 $15,000 or $25,000?

Manassas purchased a computer several years ago for $2,800. On November 10th of the current year, the computer was worth $ 920. If $1,120 of depreciation deductions had been taken, what is Manassas's tax-adjusted basis for the computer?

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

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

Manassas purchased a computer several years ago for $2,800. On November 10^th of the current year, the computer was worth $ 920. If $1,120 of depreciation deductions had been taken, what is Manassas's tax-adjusted basis for the computer?