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

A lease cancellation payment received by a lessee is generally treated as an exchange because the lease extinguished is usually a capital asset.

An individual had the following gains and losses during 2014 on property held for the long-term holding period: sale of Orange common stock ($8,000 gain); sale of real property used in the taxpayer's business ($1,800 loss); destruction of real property used in the taxpayer's business by fire ($1,000 loss). Which of the following statements is correct?

Lana purchased for $1,410 a $2,000 bond when it was issued two years ago. Lana amortized $200 of the original issue discount and then sold the bond for $1,800. Which of the following statements is correct?

Williams owned an office building (but not the land) that was destroyed by a fire. The building was insured and Williams has a $156,000 gain because his insurance recovery exceeded his adjusted basis for the building. Williams may replace the building. Williams had taken $145,000 of depreciation on the building, has no § 1231 lookback loss, has no other § 1231 transactions for the year, and has no Schedule D transactions for the year. What is the final nature of Jamison's gain for the year and what tax rate(s) apply to the gain if: a() He does reinvest the insurance proceeds? b() If he doesn't reinvest the insurance proceeds?

A net short-term capital loss first offsets any 28% net long-term capital gain before it offsets either 25% net long- term capital gain or 0%/15%/20% net long-term capital gain.

Recognized gains and losses from disposition of a capital asset may occur as a result of a:

Why is it generally better to have a net § 1231 gain year followed by a net § 1231 loss year rather than a net § 1231 loss year followed by a net § 1231 gain year?

The tax law requires that capital gains and losses be separated from other types of gains and losses because there are limitations on the deduction of net capital losses.

Nonrecaptured § 1231 losses from the six prior tax years may cause current year net § 1231 gain to be treated as ordinary income.

Samuel, head of household with two dependents, has 2014 wages of $26,000, paid alimony of $3,000, has taxable interest income of $2,000, and a $12,000 0%/15%/20% net long-term capital gain. Samuel uses the standard deduction and is age 38. What is his 2014 taxable income and the tax on the taxable income?

Violet, Inc., has a 2014 $80,000 long-term capital gain included in its $285,000 taxable income. Which of the following is correct?

The maximum amount of the unrecaptured § 1250 gain (25% gain) is the depreciation taken on real property sold at a recognized gain.

An accrual basis taxpayer accepts a note receivable from a retail customer with a weak credit rating. The taxpayer immediately sells the note to a bank for less than the note's stated value. The taxpayer has an ordinary loss.

The chart below describes the § 1231 assets sold by the Tan Company (a sole proprietorship) this year. Compute the gain or loss from each asset disposition and determine the net § 1231 gain treated as long­term capital gain for the year. Assume there is a § 1231 lookback loss of $14,000. Asset Acquired Sold Cost Deprecintion Sale Price Stamping machine 3/10/10 8/10/2014 \ 40,000 \ 29,76 \ 2,000 Factary building 2/12/07 7/23/2014 80,000 18,838 90,000 Tractor 5/16/09 1/13/2014 52,000 52,000 60,000 Overhead crane 1/12/03 2/25/2014 74,000 74,000 18,000

On January 18, 2013, Martha purchased 200 shares of Blue Corporation stock for $2,000. On November 11, 2014, she sold short 200 shares of Blue Corporation stock which she borrowed from her broker for $2,300. On February 10, 2015, Martha closed the short sale by delivering the 200 shares of Blue Corporation stock which she had acquired in 2013. On that date, Blue Corporation stock had a market price of $4 per share. What is Martha's recognized gain or loss and its character in 2014? In 2015?

Red Company had an involuntary conversion on December 23, 2014. The machinery had been acquired on April 1, 2012, for $49,000 and its adjusted basis was $14,200. The machinery was completely destroyed by fire and Red received $10,000 of insurance proceeds for the machine and did not replace it. This was Red's only casualty or theft event for the year. As a result of this event, Red initially has:

Larry was the holder of a patent on a video game. During 2014, he sold all substantial rights in the patent for $365,000 in cash and a 3% royalty on the purchaser's first $10,200,000 of sales each year related to the product in which the patent is incorporated. Larry had not reduced the patent to practice. He had a $86,000 basis for the patent. During 2014, he received $30,000 in royalties. What is the nature and amount of Larry's gain?

Which of the following statements is correct?

Section 1231 property includes nonpersonal use property where casualty gains exceed casualty losses for the taxable year.

Section 1245 may apply to amortizable § 197 intangible assets.