Exam 26: Property Transactions: Section 1231 and Recapture

Douglas bought office furniture two years and four months ago for $25,000 to use in his business and elected to expense all of it under Sec.179.Depreciation of $3,500 would have been taken under the MACRS rules.If Douglas converts the furniture to nonbusiness use today,Douglas must

Section 1231 property will generally have all the following characteristics except

Depreciable property used in a trade or business for one year or less is considered Sec.1231 property.

On June 1,2012,Buffalo Corporation purchased and placed in service 7-year MACRS tangible property costing $100,000.On November 10,2015,Buffalo sold the property for $102,000 after having taken MACRS $47,525 in depreciation deductions.What is the amount and character of Buffalo's gain?

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.

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%.

During the current year,Hugo sells equipment for $150,000.The equipment cost $175,000 when placed in service two years ago,and $55,000 of depreciation deductions were allowed.The results of the sale are

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

If the recognized losses resulting from involuntary conversions arising from casualty or theft exceed the recognized gains from such events (i.e.a net loss from the casualty),all of the involuntary conversions are treated as ordinary gains and losses.

If a taxpayer has gains on Sec.1231 assets,Secs.1245 and 1250 must be applied first to determine any amounts recaptured as ordinary income,and any excess gain may then be netted with Sec.1231 losses for possible long-term capital gain treatment.

A building used in a business for more than a year is sold.Sec.1250 will not cause depreciation recapture if

Harry owns equipment ($50,000 basis and $38,000 FMV)and a building ($140,000 basis and $156,000 FMV),which are used in his business.Harry 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 Harry collects insurance proceeds equal to the assets' FMV.The tax result to Harry for this transaction is

The following gains and losses pertain to Jimmy's business assets that qualify as Sec.1231 property.Jimmy does not have any nonrecaptured net Sec.1231 losses from previous years,and the portion of gain recaptured as ordinary income due to the depreciation recapture provisions has been eliminated. Describe the specific tax treatment of each of these transactions.

Jed sells an office building during the current year for $800,000.The building was purchased in 1980 for $350,000.Jed had depreciated the building under an accelerated method,but it is now fully depreciated.Jed has never had any other Sec.1231 transactions. a.What is the recognized gain or loss on the sale of the building and the character of the gain? b.How will the gain be taxed? c.Assume the building was purchased in 1981 and depreciated under ACRS.How will the gain be taxed?

Jaiyoun sells Sec.1231 property this year,resulting in a $4,000 gain.This is the first time he has disposed of any Sec.1231 property.Jaiyoun's tax rate is 10%.His tax on the Sec.1231 gain will be

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 section 1231 gain?

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.

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

Mark owns an unincorporated business and has $20,000 of Section 1231 gains and $22,000 of Section 1231 losses.He must report a net capital loss of $2,000 on his tax return.

Section 1250 does not apply to assets sold or exchanged at a loss.