Exam 13: Property Transactions: Section 1231 and Recapture

Costs of tangible personal business property which are expensed under Sec. 179 are subject to recapture if the property is converted to nonbusiness use before the end of the MACRS recovery period.

An unincorporated business sold two warehouses during the current year. The straight-line depreciation method was used for the first building and the accelerated method (ACRS) was used for the second building. Information about those buildings is presented below. How much gain from these sales should be reported as section 1231 gain and ordinary income due to depreciation recapture by the owner of the business?

Section 1245 recapture applies to all the following except

Pam owns a building used in her trade or business that was placed into service in 2002. The building cost $450,000 and depreciation to date amounts to $200,000. Pam sells the building for $380,000. It is the only asset she sells this year, and she has no nonrecaptured Sec. 1231 losses. What is the amount of recognized gain and the nature of the gain? How will the gain be taxed?

Julie sells her manufacturing plant and land originally purchased in 1980. Accelerated depreciation had been taken on the building, but the building is now fully depreciated. Julie is in the 39.6% marginal tax bracket. Other information is as follows: She has not sold any other assets this year. A review of her file indicates that the only asset dispositions in the past five years was a truck sold for a $10,000 loss last year. What are the tax consequences of the sale (type of gain; rates at which taxed)?

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?

Blair, whose tax rate is 28%, sells one tract of land at a gain of $29,000 and another tract of land at a gain of $11,000. Both tracts of land are Sec. 1231 property. She has never had any other Sec. 1231 transactions. How are the gains taxed?

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?

A corporation owns many acres of timber, which it acquired three years ago, and which has a $120,000 basis. The timber was cut last year for use in the corporation's business. The FMV of the timber on the first day of last year was $270,000. The corporation made the appropriate election to treat the cutting as a sale or exchange. The timber is sold for $300,000 this year. The tax result this year is

Why did Congress establish favorable treatment for 1231 assets?

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.

Jesse installed solar panels in front of his office building in 2014. The panels are not attached to the building. After using the solar panels for 13 months, Jesse decided to replace them with a newer model to obtain a greater savings on electricity costs. Jesse sold the old solar panels for an amount greater than his original purchase price. What tax issues should be considered with purchase, use and sale of the original solar panels?

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

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?

Octet Corporation placed a small storage building in service in 2000. Octet's original cost for the building is $800,000 and the cost recovery deductions are $300,000. This year the building is sold for $1,100,000. The amount and character of the gain are

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.

The amount recaptured as ordinary income under either Sec. 1245 or Sec. 1250 can never exceed the realized gain.

In addition to the normal recapture rules of Sec. 1250, corporations which sell depreciable real estate are subject to additional recapture rules of Sec. 291.

For noncorporate taxpayers, depreciation recapture is not required on real property placed in service after 1986.

When a donee disposes of appreciated gift property, the recapture amount for the donee is computed by including the recapture amount attributable to the donor.