Question 1

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A)  Congress repealed the code section.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 2

§1231 assets include all assets used in a trade or business.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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 5

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 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 adjusted basis is the initial basis less cost recovery deductions.

Accepted Answer

A) True 
 B)False

Question 8

Which one of the following is not considered boot in a like-kind exchange?

Accepted Answer

A)  Cash. 
B)  Other property. 
C)  Mortgage given. 
D)  Mortgage received. 
E)  All of the choices can be considered as boot.

Question 9

Jessie sold a piece of land held for investment for $250,000. Jessie bought the land two years ago for $195,000. What is the amount and character of Jessie's gain?

Accepted Answer

The answer of Jessie sold a piece of land held...

Question 10

Unrecaptured §1250 gains apply only to individuals.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following sections does not recapture or recharacterize a taxpayer's gain?

Accepted Answer

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

Question 12

The sale of land held for investment 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 13

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

Accepted Answer

A) True 
 B)False

Question 14

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 15

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

Accepted Answer

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

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

Question 17

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 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.
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
96) Sandra sold some equipment for $10,000 in cash, $1,000 of office products, the buyer's assumption of her $1,500 loan, and incurred selling expenses of $500. What is Sandra's amount realized in the transaction?

Question 19

Foreaker LLC sold a piece of land that it uses in its business for $52,000. Foreaker bought the land two years ago for $42,500. What is the amount and character of Foreaker's gain?

Accepted Answer

A)  $9,500 §1221. 
B)  $9,500 §1231. 
C)  $9,500 §1245. 
D)  $9,500 §1250. 
E)  None of the choices are correct.

Question 20

Brandon, an individual, began business four years ago and has sold §1231 assets with $5,950 of losses within the last five 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)  $16,450 ordinary income and $5,264 tax liability. 
B)  $16,450 §1231 gain and $2,468 tax liability. 
C)  $1,600 §1231 gain, $14,850 ordinary income, and $4,992 tax liability. 
D)  $14,850 §1231 gain, $1,600 ordinary income, and $2,740 tax liability. 
E)  None of the choices are correct.

Exam 3: Property Dispositions

Why does §1250 recapture generally no longer apply?

§1231 assets include all assets used in a trade or business.

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

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?

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?

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 adjusted basis is the initial basis less cost recovery deductions.

Which one of the following is not considered boot in a like-kind exchange?

Jessie sold a piece of land held for investment for $250,000. Jessie bought the land two years ago for $195,000. What is the amount and character of Jessie's gain?

Unrecaptured §1250 gains apply only to individuals.

Which of the following sections does not recapture or recharacterize a taxpayer's gain?

The sale of land held for investment results in which of the following types of gain or loss?

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

Which of the following is not true regarding §1239?

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

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?

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?

Foreaker LLC sold a piece of land that it uses in its business for $52,000. Foreaker bought the land two years ago for $42,500. What is the amount and character of Foreaker's gain?