Question 1

With regard to noncorporate taxpayers,all of the following statements are true regarding Sec.1250 recapture except

Accepted Answer

A) Sec.1250 affects the character of the gain,not the amount of the gain. 
B) Sec.1250 applies to assets sold or exchanged at either a gain or a loss. 
C) Sec.1250 ordinary income does not exist if the straight-line method of depreciation is used. 
D) Sec.1250 ordinary income is never more than the additional depreciation allowed. 
A) Sec.1250 affects the character of the gain,not the amount of the gain. 
B) Sec.1250 applies to assets sold or exchanged at either a gain or a loss. 
C) Sec.1250 ordinary income does not exist if the straight-line method of depreciation is used. 
D) Sec.1250 ordinary income is never more than the additional depreciation allowed.

Question 2

Pierce has a $16,000 Section 1231 loss,a $12,000 Section 1231 gain,and a salary of $50,000.What is the treatment of these items in Pierce's AGI?

Accepted Answer

A) Pierce has a LTCG of $12,000 and a net ordinary income of $34,000. 
B) The 1231 gains and losses are treated as ordinary gains and losses making Pierce's AGI for the year $46,000. 
C) Pierce has a $3,000 LTCL which is deductible for AGI making AGI $47,000.He also has a $1,000 LTCL carryover. 
D) Pierce has net LTCG of $9,000 and $37,000 of net ordinary income. 
A) Pierce has a LTCG of $12,000 and a net ordinary income of $34,000. 
B) The 1231 gains and losses are treated as ordinary gains and losses making Pierce's AGI for the year $46,000. 
C) Pierce has a $3,000 LTCL which is deductible for AGI making AGI $47,000.He also has a $1,000 LTCL carryover. 
D) Pierce has net LTCG of $9,000 and $37,000 of net ordinary income.

Question 3

Indicate whether each of the following assets are capital assets,Sec.1231 assets,or ordinary income property (property which,if sold,results in ordinary income).Assume that all of the property is held for more than one year.
a.XYZ Corporation owns land used as an employee parking lot.How is the parking lot classified for tax purposes?
b.Montana Corporation owns land held as an investment.How is the land classified for tax purposes?
c.John,a self-employed electrician,owns an automobile he uses strictly for personal use.How is the automobile classified for tax purposes?
d.Jan,a self-employed contractor,owns a truck she uses exclusively in her trade or business.How is the truck classified for tax purposes?
e.Leslie owns an office building where her accounting practice is located.What is the classification of the building?
f.Yvonne owns a computer for use in her job as a sales representative.She does not use the computer for personal purposes.How is the computer classified for tax purposes?

Accepted Answer

a.Sec.1231 property b.Capital

Question 4

Emma owns a small building ($120,000 basis and $123,000 FMV)and equipment ($35,000 basis and $22,000 FMV).Both assets were acquired three years ago,are used in Emma's business,and are depreciated using straight-line depreciation.Both are destroyed by fire.Insurance proceeds were equal to their FMVs.Only one other transfer of an asset occurs during the year,and a $3,000 LTCL is recognized.After considering all transactions,the tax result to Emma is a

Accepted Answer

A) $13,000 NLTCL. 
B) $13,000 ordinary loss. 
C) $3,000 LTCG; $3,000 LTCL; and $13,000 ordinary loss. 
D) $10,000 net ordinary loss and a $3,000 NLTCL. 
A) $13,000 NLTCL. 
B) $13,000 ordinary loss. 
C) $3,000 LTCG; $3,000 LTCL; and $13,000 ordinary loss. 
D) $10,000 net ordinary loss and a $3,000 NLTCL.

Question 5

In 2015,Thomas,who has a marginal tax rate of 15%,sells land that is Sec.1231 property at a gain of $4,000.If he has no other 1231 transactions or capital asset transactions and has no nonrecaptured 1231 gain,Thomas will pay no tax on the $4,000 gain.

Accepted Answer

A) True 
 B)False

Question 6

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

Question 7

Brian purchased some equipment in 2015 which he intends to use in his trade or business.He approaches you to assist him in planning for the ultimate disposal of the asset-whether it be by sale,charitable contribution to the local university,gift to his sister for use in her business,or some other means.Discuss the tax considerations.

Accepted Answer

Upon disposal,in general,Brian would pay

Question 8

In 1980,Mr.Lyle purchased a factory building to use in business for $480,000.When Mr.Lyle sells the building for $580,000,he has taken depreciation of $470,000.Straight-line depreciation would have been $400,000.Mr.Lyle must report

Accepted Answer

A) $570,000 of ordinary gain. 
B) $570,000 of Sec.1231 gain. 
C) $70,000 of ordinary income and $500,000 of Sec.1231 gain. 
D) $470,000 of ordinary gain and $100,000 of Sec.1231 gain. 
A) $570,000 of ordinary gain. 
B) $570,000 of Sec.1231 gain. 
C) $70,000 of ordinary income and $500,000 of Sec.1231 gain. 
D) $470,000 of ordinary gain and $100,000 of Sec.1231 gain.

Question 9

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 10

Section 1245 recapture applies to all the following except

Accepted Answer

A) depreciable personal property. 
B) assets sold or exchanged at a loss. 
C) total depreciation or amortization allowed or allowable. 
D) amortizable intangible personal property. 
A) depreciable personal property. 
B) assets sold or exchanged at a loss. 
C) total depreciation or amortization allowed or allowable. 
D) amortizable intangible personal property.

Question 11

A net Sec.1231 gain is treated as ordinary income to the extent of any nonrecaptured net Sec.1231 losses for the preceding five years.

Accepted Answer

A) True 
 B)False

Question 12

Gifts of appreciated depreciable property may trigger recapture of depreciation of cost-recovery deductions to the donor as of the date of gift.

Accepted Answer

A) True 
 B)False

Question 13

Clarise bought a building three years ago for $180,000 to use in her business.The straight-line method of depreciation was used and $15,000 of depreciation deductions were allowed.During the current year,Clarise sells the building to her wholly-owned corporation for $235,000.The tax results to Clarise are

Accepted Answer

A) $70,000 ordinary income. 
B) $70,000 of Sec.1231 gain. 
C) $55,000 ordinary income and $15,000 Sec.1231 gain. 
D) $15,000 of ordinary income and $55,000 Sec.1231 gain. 
A) $70,000 ordinary income. 
B) $70,000 of Sec.1231 gain. 
C) $55,000 ordinary income and $15,000 Sec.1231 gain. 
D) $15,000 of ordinary income and $55,000 Sec.1231 gain.

Question 14

Cassie owns equipment ($45,000 basis and $30,000 FMV)and a building ($152,000 basis and $158,000 FMV),which are used in Cassie's business.Cassie has used straight-line depreciation for both assets,which were acquired two years ago.Both the equipment and the building are destroyed in a fire,and Cassie collects insurance proceeds equal to the assets' FMV.The tax result to Cassie for this transaction is a

Accepted Answer

A) $15,000 Sec.1231 loss and a $6,000 ordinary gain. 
B) $15,000 ordinary loss and a $6,000 ordinary gain. 
C) $15,000 ordinary loss and a $6,000 Sec.1231 gain. 
D) $15,000 Sec.1231 loss and a $6,000 Sec.1231 gain. 
A) $15,000 Sec.1231 loss and a $6,000 ordinary gain. 
B) $15,000 ordinary loss and a $6,000 ordinary gain. 
C) $15,000 ordinary loss and a $6,000 Sec.1231 gain. 
D) $15,000 Sec.1231 loss and a $6,000 Sec.1231 gain.

Question 15

Installment sales of depreciable property which result in recaptured income under Secs.1245 or 1250 require that the recaptured income be recognized in the year of sale.

Accepted Answer

A) True 
 B)False

Question 16

During the current year,Danika recognizes a $30,000 Section 1231 gain and a $22,000 Section 1231 loss.Prior to this,Danika's only Section 1231 item was a $15,000 loss two years ago.Danika must report a(n)

Accepted Answer

A) $8,000 net LTCG. 
B) $8,000 ordinary income. 
C) $15,000 ordinary income. 
D) $8,000 ordinary income and $7,000 net LTCG. 
A) $8,000 net LTCG. 
B) $8,000 ordinary income. 
C) $15,000 ordinary income. 
D) $8,000 ordinary income and $7,000 net LTCG.

Question 17

In order to be considered Sec.1231 property,all of the following livestock must be held for 12 months or more from date of acquisition except

Accepted Answer

A) goats. 
B) hogs. 
C) sheep. 
D) cattle. 
A) goats. 
B) hogs. 
C) sheep. 
D) cattle.

Question 18

Elaine owns equipment ($23,000 basis and $15,000 FMV)and a building ($136,000 basis and $148,000 FMV),which are used in her business.Elaine uses straight-line depreciation for both assets,which were acquired several years ago.Both the equipment and the building are destroyed in a fire,and Elaine collects insurance proceeds equal to the assets' FMV.
a.What is the tax treatment of these two transactions?
b.Assume that Elaine is only able to collect $3,000 from the insurance company for the equipment loss.What is the tax treatment of the two transactions (assume the basis and insurance reimbursement remain the same for the building).

Accepted Answer

a.Since they are destroyed in a casualty

Question 19

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

@#IMG-DLM& The gain is less than the $12,000 depre

Question 20

An unincorporated business sold two warehouses during the current year.The straight-line depreciation method was used for Building No.1 and the accelerated method (ACRS)was used for Building No.2.Information about those buildings is presented below.   Accum.Depreciation   How much gain from these sales should be reported as section 1231 gain and ordinary income due to depreciation recapture?

Accepted Answer

Building No.2 is con

Exam 26: Property Transactions: Section 1231 and Recapture

With regard to noncorporate taxpayers,all of the following statements are true regarding Sec.1250 recapture except

Pierce has a $16,000 Section 1231 loss,a $12,000 Section 1231 gain,and a salary of $50,000.What is the treatment of these items in Pierce's AGI?

In 2015,Thomas,who has a marginal tax rate of 15%,sells land that is Sec.1231 property at a gain of $4,000.If he has no other 1231 transactions or capital asset transactions and has no nonrecaptured 1231 gain,Thomas will pay no tax on the $4,000 gain.

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.

In 1980,Mr.Lyle purchased a factory building to use in business for $480,000.When Mr.Lyle sells the building for $580,000,he has taken depreciation of $470,000.Straight-line depreciation would have been $400,000.Mr.Lyle must report

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.

Section 1245 recapture applies to all the following except

A net Sec.1231 gain is treated as ordinary income to the extent of any nonrecaptured net Sec.1231 losses for the preceding five years.

Gifts of appreciated depreciable property may trigger recapture of depreciation of cost-recovery deductions to the donor as of the date of gift.

Installment sales of depreciable property which result in recaptured income under Secs.1245 or 1250 require that the recaptured income be recognized in the year of sale.

During the current year,Danika recognizes a $30,000 Section 1231 gain and a $22,000 Section 1231 loss.Prior to this,Danika's only Section 1231 item was a $15,000 loss two years ago.Danika must report a(n)

In order to be considered Sec.1231 property,all of the following livestock must be held for 12 months or more from date of acquisition except

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?

Tax Research

an Introduction to Taxation

Corporate Formations and Capital Structure

Determination of Tax

The Corporate Income Tax

Gross Income: Inclusions

Corporate Nonliquidating Distributions

Gross Income: Exclusions

Other Corporate Tax Levies

Property Transactions: Capital Gains and Losses

Corporate Liquidating Distributions

Deductions and Losses

Corporate Acquisitions and Reorganizations

Itemized Deductions

Consolidated Tax Returns

Losses and Bad Debts

Partnership Formation and Operation

Employee Expenses and Deferred Compensation

Special Partnership Issues

Depreciation,cost Recovery,amortization,and Depletion

Corporations

Accounting Periods and Methods

The Gift Tax

Property Transactions: Nontaxable Exchanges

The Estate Tax

Income Taxation of Trusts and Estates

Special Tax Computation Methods,tax Credits,and Payment of Tax

Administrative Procedures

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