Question 1

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

Accepted Answer

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

Question 2

Which of the following is not a §1245 asset if held for more than one year?

Accepted Answer

A)  Machinery. 
B)  Automobile. 
C)  Business cell phone. 
D)  Land. 
E)  None of the choices are correct.

Question 3

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 4

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

Accepted Answer

A) True 
 B)False

Question 5

Arlington LLC exchanged land used in its business for some new land. Arlington originally purchased the land for $28,000. The new land had a fair market value of $35,000. Arlington also received $2,000 of office equipment in the transaction. What is Arlington's gain or loss recognized on the exchange?

Accepted Answer

A)  $0. 
B)  $2,000. 
C)  $7,000. 
D)  $9,000. 
E)  None of the choices are correct.

Question 6

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 7

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 8

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 9

Brandon, an individual, began business four years ago and has sold §1231 assets with $5,000 of losses within the last 5 years. Brandon owned each of the assets for several years. In the current year, Brandon sold the following business assets: 
Assuming Brandon's marginal ordinary income tax rate is 32 percent, what effect do the gains and losses have on Brandon's tax liability?
Use Dividends and Capital Gains Tax Rates for reference.

Accepted Answer

A)  $25,000 ordinary income, $8,000 tax liability. 
B)  $25,000 §1231 gain and $3,750 tax liability. 
C)  $13,000 §1231 gain, $12,000 ordinary income, and $5,790 tax liability. 
D)  $12,000 §1231 gain, $13,000 ordinary income, and $5,960 tax liability. 
E)  None of the choices are correct.

Question 10

Alexandra sold equipment that she uses in her business for $100,000. Alexandra bought the equipment 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 11

A simultaneous exchange must take place for a transaction to qualify as a like-kind exchange.

Accepted Answer

A) True 
 B)False

Question 12

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 13

Generally, the amount realized is everything of value received in a sale less selling expenses.

Accepted Answer

A) True 
 B)False

Question 14

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.

Question 15

Frederique sold furniture that she uses in her business for $15,000. Frederique bought the furniture a few years ago for $40,000 and has claimed $20,000 of depreciation expense. What is the amount and character of Frederique's gain or loss?

Accepted Answer

The answer of Frederique sold furniture that she uses in...

Question 16

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

Accepted Answer

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

Question 17

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 18

§1250 recaptures the excess of accelerated depreciation over straight-line depreciation on real property placed in service before 1987 as ordinary income.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Each of the following is True except for:

Accepted Answer

A)  a direct involuntary conversion occurs when property taken under imminent domain is replaced with other property. 
B)  qualified replacement property rules are more restrictive than the like-kind property rules. 
C)  an indirect involuntary conversion occurs when property is destroyed and insurance proceeds are used to purchase qualified replacement property. 
D)  losses realized in involuntary conversions are deferred. 
E)  all of the choices are True.

Exam 3: Property Dispositions

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

Which of the following is not a §1245 asset if held for more than one year?

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

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

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

Alexandra sold equipment that she uses in her business for $100,000. Alexandra bought the equipment 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?

A simultaneous exchange must take place for a transaction to qualify as a like-kind exchange.

Generally, the amount realized is everything of value received in a sale less selling expenses.

When does unrecaptured §1250 gains apply?

Frederique sold furniture that she uses in her business for $15,000. Frederique bought the furniture a few years ago for $40,000 and has claimed $20,000 of depreciation expense. What is the amount and character of Frederique's gain or loss?

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

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

§1250 recaptures the excess of accelerated depreciation over straight-line depreciation on real property placed in service before 1987 as ordinary income.

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.

Each of the following is True except for: