Question 1

Which of the following gains does not result solely in an ordinary gain or loss?

Accepted Answer

A)  Sale of equipment held for less than a year.
B)  Sale of inventory.
C)  Sale of equipment where the gain realized exceeds the accumulated depreciation.
D)  Sale of equipment where the accumulated depreciation exceeds the gain realized.
E)  None of these. C

Question 2

Unrecaptured §1250 gains apply only to individuals.

Accepted Answer

A) True 
 B)False  True

Question 3

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

$10,000 ordinary and $40,000 §1231 gain.
Explanation: For corporations, §291 recaptures 20 percent of the lesser of depreciation taken or the recognized gain as ordinary income. The remaining gain is §1231.

Question 4

Which of the following is true regarding depreciation recapture?

Accepted Answer

A)  Changes the character of a loss.
B)  Changes the character of a gain.
C)  Changes the amount of a gain.
D)  Only applies to ordinary assets.
E)  None of these.

Question 5

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 these.

Question 6

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 these.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

§1250 recaptures the excess of accelerated depreciation over straight line depreciation on real property placed in service between 1981 and 1986 as ordinary income.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

The sale of computer equipment used in a trade or business for 9 months results in the following type of gain or loss?

Accepted Answer

A)  Capital.
B)  Ordinary.
C)  §1231.
D)  §1245.
E)  None of these.

Question 11

Bull Run sold a computer for $1,200 on November 10^th of the current year. The computer was purchased for $2,800. Bull Run had taken $1,000 of depreciation deductions. What is Bull Run's gain or loss realized on the computer?

Accepted Answer

The answer of Bull Run sold a computer for $1,200...

Question 12

Manassas purchased a computer several years ago for $2,200. On November 10^th of the current year, the computer was worth $800. If $1,000 of depreciation deductions had been taken, what is Manassas' tax adjusted basis for the computer?

Accepted Answer

The answer of Manassas purchased a computer several years ago...

Question 13

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 these.

Question 14

A parcel of land is always a capital asset.

Accepted Answer

A) True 
 B)False

Question 15

An asset's tax adjusted basis is usually greater than its book adjusted basis.

Accepted Answer

A) True 
 B)False

Question 16

Assets held for investment and personal use assets are examples of capital assets.

Accepted Answer

A) True 
 B)False

Question 17

Which one of the following is not a requirement of a deferred like-kind exchange?

Accepted Answer

A)  The like-kind property to be received must be identified within 45 days.
B)  The exchange must be completed within the taxable year.
C)  The like-kind property must be received within 180 days.
D)  A third party intermediary is often used to facilitate the exchange.
E)  All of these.

Question 18

Sadie sold 10 shares of stock to her brother, George, for $500 six 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 these.

Question 19

Brandon, an individual, began business four years ago and has never sold a §1231 asset. 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 35 percent, what effect do the gains and losses have on Brandon's tax liability?

Accepted Answer

A)  $7,000 ordinary income, $1,000 §1231 loss and $2,100 tax liability.
B)  $6,000 ordinary income and $2,100 tax liability.
C)  $7,000 §1231 gain and $2,450 tax liability.
D)  $7,000 §1231 gain and $1,050 tax liability.
E)  None of these.

Question 20

How long after the initial exchange does a taxpayer have to identify replacement property in a like-kind exchange?

Accepted Answer

A)  The like-kind property to be received must be identified within 45 days.
B)  The like-kind property to be received must be identified by the earlier of 45 days or the last day of the taxpayer's taxable year.
C)  The like-kind property to be received must be identified within 180 days.
D)  There is no deadline for the identification of replacement property.
E)  All of these.

Exam 11: Property Dispositions

Which of the following gains does not result solely in an ordinary gain or loss?

Unrecaptured §1250 gains apply only to individuals.

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?

Which of the following is true regarding depreciation recapture?

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

When does unrecaptured §1250 gains apply?

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

§1250 recaptures the excess of accelerated depreciation over straight line depreciation on real property placed in service between 1981 and 1986 as ordinary income.

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

The sale of computer equipment used in a trade or business for 9 months results in the following type of gain or loss?

Bull Run sold a computer for $1,200 on November 10th of the current year. The computer was purchased for $2,800. Bull Run had taken $1,000 of depreciation deductions. What is Bull Run's gain or loss realized on the computer?

Manassas purchased a computer several years ago for $2,200. On November 10th of the current year, the computer was worth $800. If $1,000 of depreciation deductions had been taken, what is Manassas' tax adjusted basis for the computer?

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

A parcel of land is always a capital asset.

An asset's tax adjusted basis is usually greater than its book adjusted basis.

Assets held for investment and personal use assets are examples of capital assets.

Which one of the following is not a requirement of a deferred like-kind exchange?

Sadie sold 10 shares of stock to her brother, George, for $500 six 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?

How long after the initial exchange does a taxpayer have to identify replacement property in a like-kind exchange?

Bull Run sold a computer for $1,200 on November 10^th of the current year. The computer was purchased for $2,800. Bull Run had taken $1,000 of depreciation deductions. What is Bull Run's gain or loss realized on the computer?

Manassas purchased a computer several years ago for $2,200. On November 10^th of the current year, the computer was worth $800. If $1,000 of depreciation deductions had been taken, what is Manassas' tax adjusted basis for the computer?