Question 1

Which of the following would extinguish the § 1245 recapture potential?

Accepted Answer

A)  An exchange of depreciable business equipment for like-kind business equipment with gain realized, but not recognized. 
B)  A nontaxable incorporation under § 351. 
C)  A nontaxable contribution to a partnership under § 721. 
D)  A nontaxable reorganization. 
E)  None of the above. 
A)  An exchange of depreciable business equipment for like-kind business equipment with gain realized, but not recognized. 
B)  A nontaxable incorporation under § 351. 
C)  A nontaxable contribution to a partnership under § 721. 
D)  A nontaxable reorganization. 
E)  None of the above.

Question 2

Personal use property casualty gains and losses are not subject to the § 1231 rules.

Accepted Answer

A) True 
 B)False

Question 3

Assume a building is subject to § 1250 depreciation recapture because § 168(k) was used to depreciate it. The building is destroyed in a hurricane and this is the taxpayer's only casualty or theft for the year. In which of the following situations could there be a § 1250 depreciation recapture gain?

Accepted Answer

A)  There is a loss because the insurance recovery is less than the adjusted basis. 
B)  There is a gain because the insurance recovery exceeds the adjusted basis. 
C)  Because of the length of time the building has been held, there is no remaining additional depreciation. 
D)  There is no insurance recovery and the adjusted basis of the building is greater than zero. 
E)  None of the above. 
A)  There is a loss because the insurance recovery is less than the adjusted basis. 
B)  There is a gain because the insurance recovery exceeds the adjusted basis. 
C)  Because of the length of time the building has been held, there is no remaining additional depreciation. 
D)  There is no insurance recovery and the adjusted basis of the building is greater than zero. 
E)  None of the above.

Question 4

Hiram is a computer engineer and, while unemployed, invents a switching device for computer networks. He patents the device, but does not reduce it to practice. Hiram has a zero tax basis for the patent. In consideration of
$800,000 plus a $1 royalty per device sold, Hiram assigns the patent to a computer manufacturing company. Hiram assigned all substantial rights in the patent. Which of the following is correct?

Accepted Answer

A)  Hiram automatically has long-term capital gain from the lump sum payment, but not from the royalty payments. 
B)  Hiram automatically has long-term capital gain from the royalty payments, but not from the lump sum payment. 
C)  Hiram automatically has long-term capital gain from both the lump sum payment and the royalty payments. 
D)  Hiram does not have automatic long-term capital gain from either the lump sum payment or the royalty payments. 
E)  None of the above. 
A)  Hiram automatically has long-term capital gain from the lump sum payment, but not from the royalty payments. 
B)  Hiram automatically has long-term capital gain from the royalty payments, but not from the lump sum payment. 
C)  Hiram automatically has long-term capital gain from both the lump sum payment and the royalty payments. 
D)  Hiram does not have automatic long-term capital gain from either the lump sum payment or the royalty payments. 
E)  None of the above.

Question 5

Which of the following would be included in the netting of § 1231 gains and losses?

Accepted Answer

A)  Personal use property net casualty gain. 
B)  Section 1231 loss. 
C)  Section 1231 gain. 
D)  All of the above. 
E) B and c. 
A)  Personal use property net casualty gain. 
B)  Section 1231 loss. 
C)  Section 1231 gain. 
D)  All of the above. 
E) B and c.

Question 6

In 2014 Angela, a single taxpayer with no dependents, disposed of for $44,000 a business building which cost $100,000. $60,000 of depreciation had been taken on the building. Angela has a short-term capital loss of $3,000 this year. She has taxable income (not related to property transactions) of $125,000. She has no § 1231 lookback loss. What is the amount and nature of the gain or loss, what is Angela's taxable income, and what is her tax on the taxable income?

Accepted Answer

The adjusted basis of the building is $4

Question 7

Describe the circumstances in which the potential § 1245 depreciation recapture is extinguished.

Accepted Answer

Section 1245 depreciation recapture pote

Question 8

The possible holding periods for capital assets include:

Accepted Answer

A)  Short-term = held 14 months or less. 
B)  Long-term = greater than six months. 
C)  Long-term = greater than 12 months. 
D)  Short-term = greater than 12 months. 
E)  None of the above. 
A)  Short-term = held 14 months or less. 
B)  Long-term = greater than six months. 
C)  Long-term = greater than 12 months. 
D)  Short-term = greater than 12 months. 
E)  None of the above.

Question 9

In 2014, Satesh has $5,000 short-term capital loss, $13,000 0%/15%/20% long-term capital gain, and $7,000 qualified dividend income. Satesh is single and has other taxable income of $15,000. Which of the following statements is correct?

Accepted Answer

A)  No more than $13,000 of Satesh's taxable income is taxed at 0%. 
B)  No more than $7,000 of Satesh's taxable income is taxed at 0%. 
C)  No more than $15,000 of Satesh's taxable income is taxed at 0%. 
D)  None of Satesh's taxable income is taxed at 0%. 
E)  All of Satesh's taxable income is taxed at 0%. 
A)  No more than $13,000 of Satesh's taxable income is taxed at 0%. 
B)  No more than $7,000 of Satesh's taxable income is taxed at 0%. 
C)  No more than $15,000 of Satesh's taxable income is taxed at 0%. 
D)  None of Satesh's taxable income is taxed at 0%. 
E)  All of Satesh's taxable income is taxed at 0%.

Question 10

"Collectibles" held long­term and sold at a gain are subject to maximum tax rate of 28%. An individual taxpayer recently sold an antique car for $40,000. The car had been held for several years and $30,000 was originally paid for it. Explain why the car is or is not a collectible.

Accepted Answer

The definition of "collectibles" is quit

Question 11

Ramon is in the business of buying and selling securities. Which of the following is a capital asset for Ramon?

Accepted Answer

A)  The securities he buys and sells each day in the normal course of his business. 
B)  The securities he designates as held for investment at the end of the day of acquisition. 
C)  The securities he holds more than 12 months. 
D)  All the securities he owns. 
E) B, c., and d. 
A)  The securities he buys and sells each day in the normal course of his business. 
B)  The securities he designates as held for investment at the end of the day of acquisition. 
C)  The securities he holds more than 12 months. 
D)  All the securities he owns. 
E) B, c., and d.

Question 12

A business machine purchased April 10, 2012, for $98,000 was fully depreciated in 2012 using § 179 immediate expensing. On August 15, 2014, the machine was sold for $67,000. What is the amount and nature of the gain or loss from disposition of the machine?

Accepted Answer

The machine was a § 1231 asset because i

Question 13

For tax purposes, there is no original issue discount on a bond unless the bond is issued for less than its face value and the difference between the face value and the bond issue price is at least one-fourth of 1 percent of the redemption price at maturity multiplied by the number of years to maturity.

Accepted Answer

A) True 
 B)False

Question 14

Gold Company signs a 13-year franchise agreement with Silver. Silver retained significant powers, rights, and a continuing interest. Gold Company (the franchisee) makes noncontingent payments of $18,000 per year for the first four years of the franchise. Gold Company also pays a contingent fee of 2% of gross sales every month. Which of the following statements is correct?

Accepted Answer

A)  Gold Company may deduct the $18,000 per year noncontingent payments in full as they are made. 
B)  Gold Company may deduct the monthly contingent fee as it is paid. 
C)  Gold Company may deduct both the noncontingent annual fee and the contingent monthly fees as they are paid. 
D)  Gold Company may not deduct either the noncontingent annual fee or the contingent monthly fees as they are paid. 
E)  None of the above. 
A)  Gold Company may deduct the $18,000 per year noncontingent payments in full as they are made. 
B)  Gold Company may deduct the monthly contingent fee as it is paid. 
C)  Gold Company may deduct both the noncontingent annual fee and the contingent monthly fees as they are paid. 
D)  Gold Company may not deduct either the noncontingent annual fee or the contingent monthly fees as they are paid. 
E)  None of the above.

Question 15

For § 1245 recapture to apply, accelerated depreciation must have been taken on the property.

Accepted Answer

A) True 
 B)False

Question 16

Since the Code section that defines "capital asset" says what is not a capital asset, other Code sections have to help determine what is and what is not a capital gain or loss.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following real property could be subject to § 1250 depreciation recapture?

Accepted Answer

A)  Property placed in service after 1986 on which straight-line depreciation was taken. 
B)  A building on which § 168(k) depreciation was taken. 
C)  Equipment on which accelerated depreciation was taken. 
D)  Land which was not depreciated. 
E)  a. and b. 
A)  Property placed in service after 1986 on which straight-line depreciation was taken. 
B)  A building on which § 168(k) depreciation was taken. 
C)  Equipment on which accelerated depreciation was taken. 
D)  Land which was not depreciated. 
E)  a. and b.

Question 18

Section 1245 depreciation recapture potential does not carryover from the deceased taxpayer to the beneficiary taxpayer.

Accepted Answer

A) True 
 B)False

Question 19

Depreciation recapture under § 1245 and § 1250 is reported on Form 4797.

Accepted Answer

A) True 
 B)False

Question 20

White Company acquires a new machine for $75,000 and uses it in White's manufacturing operations. A few months after White places the machine in service, it discovers that the machine is not suitable for White's business. White had fully expensed the machine in the year of acquisition using § 179. White sells the machine for $60,000 in the tax year after it was acquired, but held the machine only for a total of 10 months. What was the tax status of the machine when it was disposed of and the amount of the gain or loss?

Accepted Answer

A)  A capital asset and $60,000 gain. 
B)  An ordinary asset and $60,000 gain. 
C)  A § 1231 asset and $60,000 gain. 
D)  A § 1231 asset and $60,000 loss. 
E)  None of the above. 
A)  A capital asset and $60,000 gain. 
B)  An ordinary asset and $60,000 gain. 
C)  A § 1231 asset and $60,000 gain. 
D)  A § 1231 asset and $60,000 loss. 
E)  None of the above.

Exam 14: Property Transactions: Capital Gains and Losses, 1231, and Recapture Provisions

Which of the following would extinguish the § 1245 recapture potential?

Personal use property casualty gains and losses are not subject to the § 1231 rules.

Which of the following would be included in the netting of § 1231 gains and losses?

Describe the circumstances in which the potential § 1245 depreciation recapture is extinguished.

The possible holding periods for capital assets include:

In 2014, Satesh has $5,000 short-term capital loss, $13,000 0%/15%/20% long-term capital gain, and $7,000 qualified dividend income. Satesh is single and has other taxable income of $15,000. Which of the following statements is correct?

"Collectibles" held long­term and sold at a gain are subject to maximum tax rate of 28%. An individual taxpayer recently sold an antique car for $40,000. The car had been held for several years and $30,000 was originally paid for it. Explain why the car is or is not a collectible.

Ramon is in the business of buying and selling securities. Which of the following is a capital asset for Ramon?

A business machine purchased April 10, 2012, for $98,000 was fully depreciated in 2012 using § 179 immediate expensing. On August 15, 2014, the machine was sold for $67,000. What is the amount and nature of the gain or loss from disposition of the machine?

For § 1245 recapture to apply, accelerated depreciation must have been taken on the property.

Since the Code section that defines "capital asset" says what is not a capital asset, other Code sections have to help determine what is and what is not a capital gain or loss.

Which of the following real property could be subject to § 1250 depreciation recapture?

Section 1245 depreciation recapture potential does not carryover from the deceased taxpayer to the beneficiary taxpayer.

Depreciation recapture under § 1245 and § 1250 is reported on Form 4797.

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges

Alternative Minimum Tax

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

Filters

"Collectibles" held longterm and sold at a gain are subject to maximum tax rate of 28%. An individual taxpayer recently sold an antique car for $40,000. The car had been held for several years and $30,000 was originally paid for it. Explain why the car is or is not a collectible.