Exam 13: Property Transactions: Section 1231 and Recapture

WAM Corporation sold a warehouse during the current year for $830,000. The building had been acquired in 1991 at a cost of $730,000 and had total straight-line depreciation of $510,000. What is the amount and nature of the gain or loss on the sale of the warehouse?

When gain is recognized on an involuntary conversion, gain is subject to recapture under Sec. 1245 or Sec.1250.

Gain due to depreciation recapture is included in the netting of Sec. 1231 gains and losses.

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

Jillian, whose tax rate is 39.6%, had the following sales of Section 1231 property this year: Sale of land at a gain of $15,000 Sale of land at a gain of $12,000 Sale of land at a loss of $8,000 a. What is the amount of her resulting tax liability? b. Assume instead that Jillian has a 15% marginal tax rate. What is the amount of her resulting tax liability? c. Assume instead that Jillian has a 28% marginal tax rate. What is the amount of her resulting tax liability?

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

When appreciated property is transferred at death, the recapture potential carries over to the person who receives the property from the decedent.

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

Melissa acquired oil and gas properties for $600,000. During 2014 she elected to expense the $180,000 of IDC. Total depletion allowed was $50,000. During the current year, Melissa sells the property for $700,000. a. What is the amount of and nature of her gain using the facts above? b. What is the amount of and nature of her gain assuming that she sold the property for $850,000?

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.

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).

Frisco Inc., a C corporation, placed a building in service in 2002 and deducted straight-line depreciation under the MACRS system in the normal manner. It sold the building this year for a substantial gain. Because straight-line depreciation was used, Frisco will not need to recognize any ordinary gain.

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

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%.

Aamir has $25,000 of net Sec. 1231 gains this year on business assets. In addition, incurred $18,000 of loss on the sale of stock held six months. Aamir will include in his AGI

Marta purchased residential rental property for $600,000 on January 1, 1985. Total ACRS deductions for 1985 through the date of sale amounted to $600,000. If the straight-line method of depreciation had been used, depreciation would have been $600,000. The property is sold for $750,000 on January 1 of the current year. The amount and character of the gain is

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.

Jacqueline dies while owning a building with a $1,000,000 FMV. The building is classified as Sec. 1245 property acquired in 1985 for $850,000. Cost-recovery deductions of $850,000 have been claimed. Pam inherits the property. a. What is the amount of Pam's basis in the property? b. What is the amount of cost-recovery deductions that Pam must recover if she immediately sells the building?

If realized gain from disposition of business equipment exceeds total depreciation or cost recovery, a portion of the gain will receive Sec. 1231 treatment if the equipment's holding period is more than one year.

All of the following are considered related parties for purposes of Sec. 1239 recapture with the exception of