Question 1

Gains and losses from involuntary conversions of property used in a trade or business generally are classified as capital gains and losses.

Accepted Answer

A) True 
 B)False

Question 2

Any gain or loss resulting from the sale or disposition of depreciable property used in trade or business and held one year or less is considered ordinary.

Accepted Answer

A) True 
 B)False

Question 3

An individual taxpayer sells a business building placed in service five years ago and recognizes a gain.This is the taxpayer's first and only sale of Sec.1231 property.Since the gain will be treated as LTCG,the details of the sale should be reported on Schedule D of Form 1040.

Accepted Answer

A) True 
 B)False

Question 4

Pete sells equipment for $15,000 to Marcel,his son.The equipment cost $20,000 and has accumulated depreciation of $12,000.Marcel will use the equipment in his business.
a.What is the amount and character of Pete's gain on the sale?
b.How does your answer change if the sales price is $22,000?

Accepted Answer

The answer of Pete sells equipment for $15,000 to Marcel,his...

Question 5

What is the purpose of Sec.1245 and what is its significance?

Accepted Answer

The answer of What is the purpose of Sec.1245 and...

Question 6

When corporate and noncorporate taxpayers sell real property placed in service after 1986,all depreciation taken will be taxed at a maximum rate of 25%.

Accepted Answer

A) True 
 B)False

Question 7

A corporation sold a warehouse during the current year.The straight-line depreciation method was used.Information about the building is presented below:

How much gain should the corporation report as Sec.1231 gain?

Accepted Answer

A)  $124,000 
B)  $620,000 
C)  $586,000 
D)  $710,000

Question 8

If realized gain from disposition of business equipment exceeds total depreciation or cost recovery,a portion of the gain will receive Sec.1231 treatment if the equipment's holding period is more than one year.

Accepted Answer

A) True 
 B)False

Question 9

Blair,whose tax rate is 28%,sells one tract of land at a gain of $29,000 and another tract of land at a gain of $11,000.Both tracts of land are Sec.1231 property.She has never had any other Sec.1231 transactions.How are the gains taxed?

Accepted Answer

A)  ordinary income of $40,000 taxed at 28% 
B)  a net capital gain of $40,000 which is not taxed 
C)  a net capital gain of $40,000 taxed at 15% 
D)  ordinary income of $40,000 taxed at 25%

Question 10

During the current year,George recognizes a $30,000 Sec.1231 gain on sale of land and a $18,000 Sec.1231 loss on the sale of land.Prior to this,George's only Sec.1231 item was a $14,000 loss six years ago.George must report a

Accepted Answer

A)  $12,000 net LTCG. 
B)  $12,000 ordinary income. 
C)  $14,000 ordinary income. 
D)  $10,000 ordinary income and $2,000 net LTCG.

Question 11

The purpose of Sec.1245 is to eliminate the advantage taxpayers would have if they were able to reduce ordinary income by depreciation deductions and also receive favorable Sec.1231 treatment when the asset was sold.

Accepted Answer

A) True 
 B)False

Question 12

Jacqueline dies while owning a building with a $1,000,000 FMV.The building is classified as Sec.1245 property acquired in 1985 for $850,000.Cost-recovery deductions of $850,000 have been claimed.Pam inherits the property.
a.What is the amount of Pam's basis in the property?
b.What is the amount of cost-recovery deductions that Pam must recover if she immediately sells the building?

Accepted Answer

The answer of Jacqueline dies while owning a building with...

Question 13

An unincorporated business sold two warehouses during the current year.The straight-line depreciation method was used for the first building and the accelerated method (ACRS) was used for the second building.Information about those buildings is presented below.

How much gain from these sales should be reported as Sec.1231 gain and ordinary income due to depreciation recapture by the owner of the business?

Accepted Answer

A)   
B)   
C)   
D)

Question 14

Jeremy has $18,000 of Sec.1231 gains and $23,000 of Sec.1231 losses.The gains and losses are characterized as

Accepted Answer

A)   
B)   
C)   
D)

Question 15

A taxpayer has a gain on Sec.1245 property.None of the gain will be treated as Sec.1231 gain unless the sale price exceeds the original cost.

Accepted Answer

A) True 
 B)False

Question 16

Sec.1231 property will generally have all the following characteristics except

Accepted Answer

A)  real or depreciable property. 
B)  used in trade or business. 
C)  held for sale to customers. 
D)  held for more than one year.

Question 17

A taxpayer purchased a factory building in 1985 for $800,000.After claiming ACRS-accelerated depreciation of $800,000,she sells the asset for $1,000,000 during the current year.No payment is received during the current year,and the $1,000,000 balance to be paid with interest at the interest rate in four annual payments beginning one year from date of sale.The installment sales method is adopted.How much ordinary income is recognized in the current year?

Accepted Answer

A)  $ 0 
B)  $200,000 
C)  $800,000 
D)  $1,000,000

Question 18

In addition to the normal recapture rules of Sec.1250,corporations which sell depreciable real estate are subject to additional recapture rules of Sec.291.

Accepted Answer

A) True 
 B)False

Question 19

Echo Corporation plans to sell a small building to Nate,its 65% shareholder.The building was placed in service five years ago.An independent appraisal will be obtained to set the selling price at an appropriate market price,and a $50,000 gain is expected to result.The only asset previously sold by Echo was a stock investment five years ago which resulted in a $40,000 loss.If the sale of the building closes before year-end,the gain on the building will allow recognition of the capital loss carryover before it expires.

Accepted Answer

A) True 
 B)False

Question 20

Gain recognized on the sale or exchange of property between related parties is capital if the property is subject to depreciation in the hands of the transferee.

Accepted Answer

A) True 
 B)False

Exam 13: Property Transactions: Sec1231 and Recapture

Gains and losses from involuntary conversions of property used in a trade or business generally are classified as capital gains and losses.

Any gain or loss resulting from the sale or disposition of depreciable property used in trade or business and held one year or less is considered ordinary.

An individual taxpayer sells a business building placed in service five years ago and recognizes a gain.This is the taxpayer's first and only sale of Sec.1231 property.Since the gain will be treated as LTCG,the details of the sale should be reported on Schedule D of Form 1040.

Pete sells equipment for $15,000 to Marcel,his son.The equipment cost $20,000 and has accumulated depreciation of $12,000.Marcel will use the equipment in his business. a.What is the amount and character of Pete's gain on the sale? b.How does your answer change if the sales price is $22,000?

What is the purpose of Sec.1245 and what is its significance?

When corporate and noncorporate taxpayers sell real property placed in service after 1986,all depreciation taken will be taxed at a maximum rate of 25%.

A corporation sold a warehouse during the current year.The straight-line depreciation method was used.Information about the building is presented below: How much gain should the corporation report as Sec.1231 gain?

If realized gain from disposition of business equipment exceeds total depreciation or cost recovery,a portion of the gain will receive Sec.1231 treatment if the equipment's holding period is more than one year.

Blair,whose tax rate is 28%,sells one tract of land at a gain of $29,000 and another tract of land at a gain of $11,000.Both tracts of land are Sec.1231 property.She has never had any other Sec.1231 transactions.How are the gains taxed?

During the current year,George recognizes a $30,000 Sec.1231 gain on sale of land and a $18,000 Sec.1231 loss on the sale of land.Prior to this,George's only Sec.1231 item was a $14,000 loss six years ago.George must report a

The purpose of Sec.1245 is to eliminate the advantage taxpayers would have if they were able to reduce ordinary income by depreciation deductions and also receive favorable Sec.1231 treatment when the asset was sold.

Jeremy has $18,000 of Sec.1231 gains and $23,000 of Sec.1231 losses.The gains and losses are characterized as

A taxpayer has a gain on Sec.1245 property.None of the gain will be treated as Sec.1231 gain unless the sale price exceeds the original cost.

Sec.1231 property will generally have all the following characteristics except

In addition to the normal recapture rules of Sec.1250,corporations which sell depreciable real estate are subject to additional recapture rules of Sec.291.

Gain recognized on the sale or exchange of property between related parties is capital if the property is subject to depreciation in the hands of the transferee.