Question 1

Arlington LLC exchanged land used in its business for some new land. Arlington originally purchased the land it exchanged for $28,500. The new land had a fair market value of $35,250. Arlington also received $2,500 of office equipment in the transaction. What is Arlington'srecognized gain or loss on the exchange?

Accepted Answer

A)  $0. 
B)  $2,500. 
C)  $6,750. 
D)  $9,250. 
E)  None of the choices are correct.

Question 2

Which of the following results in an ordinary gain or loss?

Accepted Answer

A)  Sale of a machine at a gain. 
B)  Sale of stock held for investment. 
C)  Sale of a §1231 asset. 
D)  Sale of inventory. 
E)  None of the choices are correct.

Question 3

Bateman Corporation sold an office building that it used in its business for $800,250. Bateman bought the building 10 years ago for $599,875 and has claimed $200,375 of depreciation expense. What is the amount and character of Bateman's gain or loss?

Accepted Answer

A)  $40,075 ordinary and $360,675 §1231 gain. 
B)  $200,375 ordinary and $200,375 §1231 gain. 
C)  $400,750 ordinary gain. 
D)  $400,750 capital gain. 
E)  None of the choices are correct.

Question 4

Losses on sales between related parties are realized but not recognized.

Accepted Answer

A) True 
 B)False

Question 5

Winchester LLC sold the following business assets during the current year: (1) automobile, $30,000 cost basis, $12,000 depreciation, $20,000 proceeds; (2) machinery, $25,000 cost basis, $20,000 depreciation, $10,000 proceeds; (3) furniture, $15,000 cost basis, $10,000 depreciation, $4,000 proceeds; (4) computer equipment, $25,000 cost basis, $6,000 depreciation, $10,000 proceeds; (5) Winchester had unrecaptured §1231 losses of $3,000 in the prior five years. What are the amount and character of Winchester's gains and losses before the §1231 netting process? Assume all assets were held for more than one year.

Accepted Answer

A)  $3,000 ordinary loss, $0 §1231 loss. 
B)  $7,000 ordinary gain, $10,000 §1231 loss. 
C)  $7,000 ordinary loss, $4,000 §1231 gain. 
D)  $1,000 ordinary gain, $4,000 §1231 loss. 
E)  None of the choices are correct.

Question 6

Brad sold a rental house that he owned for $247,000. Brad bought the rental house five years ago for $228,000 and has claimed $48,500 of depreciation expense. What is the amount and character of Brad's gain or loss?

Accepted Answer

A)  $19,000 ordinary and $48,500 unrecaptured §1250 gain. 
B)  $19,000 §1231 gain and $48,500 unrecaptured §1250 gain. 
C)  $19,000 capital and $48,500 ordinary gain. 
D)  $67,500 ordinary gain. 
E)  None of the choices are correct.

Question 7

What is the character of land used in an active trade or business for two years?

Accepted Answer

A)  Capital. 
B)  Ordinary. 
C)  §1231. 
D)  Investment. 
E)  None of the choices are correct.

Question 8

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

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

Ordinary gains and losses are obtained on the sale of investments.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

For corporations, §291 recaptures 20 percent of the lesser of depreciation taken or the realized gain as ordinary income.

Accepted Answer

A) True 
 B)False

Question 13

Butte sold a machine to a machine dealer for $50,600. Butte bought the machine for $54,400 several years ago and has claimed $12,200 of depreciation expense on the machine. What is the amount and character of Butte's gain or loss?

Accepted Answer

A)  $8,400 §1231 loss. 
B)  $3,800 §1231 loss. 
C)  $8,400 ordinary gain. 
D)  $8,400 capital gain. 
E)  None of the choices are correct.

Question 14

The sale of computer equipment used in a trade or business for nine months results in which of the following types of gain or loss?

Accepted Answer

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

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Reid had a business building destroyed in a fire. The old building was purchased for $375,550, and $58,900 of depreciation deductions had been taken. Although the old building had a fair market value of $424,945 at the time of the fire, his insurance proceeds were limited to $398,900. Reid found qualified replacement property that he acquired six months later for $389,450. What is the amount of Reid's realized gain and recognized gain?

Accepted Answer

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

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.

Question 18

Sadie sold 10 shares of stock to her brother, George, for $530 16 months ago. Sadie had purchased the stock for $660 two years earlier. If George sells the stock for $790, what are the amount and character of his recognized gain or loss in the current year?

Accepted Answer

A)  $0. 
B)  $130 short-term capital gain. 
C)  $130 long-term capital gain. 
D)  $260 short-term capital gain. 
E)  None of the choices are correct.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Redoubt LLC exchanged an office building used in its business for a rental house. Redoubt originally purchased the building for $80,000, and it had an adjusted basis of $53,000 at the time of the exchange. The rental house had a fair market value of $62,000. Redoubt also received $7,000 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...

Exam 3: Property Dispositions

Which of the following results in an ordinary gain or loss?

Bateman Corporation sold an office building that it used in its business for $800,250. Bateman bought the building 10 years ago for $599,875 and has claimed $200,375 of depreciation expense. What is the amount and character of Bateman's gain or loss?

Losses on sales between related parties are realized but not recognized.

Brad sold a rental house that he owned for $247,000. Brad bought the rental house five years ago for $228,000 and has claimed $48,500 of depreciation expense. What is the amount and character of Brad's gain or loss?

What is the character of land used in an active trade or business for two years?

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

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

Ordinary gains and losses are obtained on the sale of investments.

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

For corporations, §291 recaptures 20 percent of the lesser of depreciation taken or the realized gain as ordinary income.

Butte sold a machine to a machine dealer for $50,600. Butte bought the machine for $54,400 several years ago and has claimed $12,200 of depreciation expense on the machine. What is the amount and character of Butte's gain or loss?

The sale of computer equipment used in a trade or business for nine months results in which of the following types of gain or loss?

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

Sadie sold 10 shares of stock to her brother, George, for $530 16 months ago. Sadie had purchased the stock for $660 two years earlier. If George sells the stock for $790, what are the amount and character of his recognized gain or loss in the current year?

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