Question 1

Which of the following is not an involuntary conversion?

Accepted Answer

A)  Destruction caused by a hurricane. 
B)  Imminent domain. 
C)  A foreclosure. 
D)  Fire damage. 
E)  All of the choices could be involuntary conversions.

Question 2

Only accelerated depreciation is recaptured for §1245 assets.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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 5

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

Accepted Answer

A) True 
 B)False

Question 6

Sadie sold 10 shares of stock to her brother,George,for $500 sixteen months ago.Sadie had purchased the stock for $600 two years earlier.If George sells the stock for $700 six months later,what is 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 7

Ashburn reported a $105,000 net §1231 gain in year 6.Assuming Ashburn reported $60,000 of nonrecaptured §1231 losses during years 1-5,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 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

Tyson had a parcel of undeveloped investment land that he wanted to trade for a warehouse to be used in his business.He found a buyer willing to pay him $450,000 for the land.He transferred the land to a third party intermediary on April 1st of the current year.On May 10th,with the help of a commercial real estate agent,Tyson identified two suitable warehouses.On August 10th he made an offer on the first building which was rejected.On August 13th an offer was accepted on the second warehouse.On September 23rd the third party intermediary transferred $500,000 ($450,000 from the original property plus $50,000 from Tyson)to the seller and conveyed title to the warehouse to Tyson.Explain whether the exchange of property qualifies as a like-kind exchange.

Accepted Answer

The answer of Tyson had a parcel of undeveloped investment...

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

The general rule regarding the exchanged basis in the new property received in a like-kind exchange is:

Accepted Answer

A)  The basis is equal to the fair market value of the new property. 
B)  The basis is equal to the fair market value of the old property. 
C)  The basis is equal to the adjusted basis of the old property. 
D)  The basis is equal to the cost basis of the old property. 
E)  All of the choices are correct.

Question 12

Which of the following is true regarding the §1231 look-back rule?

Accepted Answer

A)  It only applies when a §1231 loss occurs. 
B)  It only applies when a §1231 gain occurs. 
C)  It only applies when a §1231 gain occurs and there is a nonrecaptured §1231 loss in the prior five years. 
D)  It only applies when a §1231 gain occurs and there is a nonrecaptured §1231 gain in the prior five years. 
E)  None of the choices are correct.

Question 13

Buzz Corporation sold an office building that it used in its business for $500,000.Buzz bought the building ten 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 14

Pelosi Corporation sold a parcel of land valued at $300,000.Its basis in the land was $250,000.For the land,Pelosi received $150,000 in cash in the current year and a note providing Pelosi with $150,000 in the subsequent year.What is Pelosi'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 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 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 17

Brad sold a rental house that he owned for $250,000.Brad bought the rental house five years ago for $225,000 and has claimed $50,000 of depreciation expense.What is the amount and character of Brad's gain or loss?

Accepted Answer

A)  $25,000 ordinary and $50,000 unrecaptured §1250 gain. 
B)  $25,000 §1231 gain and $50,000 unrecaptured §1250 gain. 
C)  $75,000 ordinary gain. 
D)  $75,000 capital gain. 
E)  None of the choices are correct.

Question 18

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 19

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

Accepted Answer

A) True 
 B)False

Question 20

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 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.

Exam 11: Property Dispositions

Which of the following is not an involuntary conversion?

Only accelerated depreciation is recaptured for §1245 assets.

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

When does unrecaptured §1250 gains apply?

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

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

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

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

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

The general rule regarding the exchanged basis in the new property received in a like-kind exchange is:

Which of the following is true regarding the §1231 look-back rule?

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

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

Brad sold a rental house that he owned for $250,000.Brad bought the rental house five years ago for $225,000 and has claimed $50,000 of depreciation expense.What is the amount and character of Brad's gain or loss?

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

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

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