Exam 13: Property Transactions: Section 1231 and Recapture

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.

Section 1231 property will generally have all the following characteristics except

For livestock to be considered Section 1231 property,

Eric purchased a building in 2005 that he uses in his business. Eric uses the straight-line method for the building. Eric's original cost for the building is $420,000 and cost-recovery deductions are $120,000. Eric is in the top tax bracket and has never sold any other business assets. If the building is sold for $560,000, the tax results are

A corporation owns many acres of timber, which it acquired three years ago, and which has a $150,000 basis for depletion. The timber is cut during the current year for use in the corporation's business. The FMV of the timber on the first day of the current year is $280,000. If the corporation makes the appropriate election, the tax result is

Describe the tax treatment for a noncorporate taxpayer in the 39.6% marginal tax bracket who sells each of the first two assets for $500,000 and each of the second two assets for $750,000. Each asset was purchased in 2011 and is used in a trade or business. There are no other gains and losses and no nonrecaptured Section 1231 losses.

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?

With respect to residential rental property

The additional recapture under Sec. 291 is 25% of the difference between the amount that would have been recaptured if the property was Sec. 1245 property and the actual recapture under Sec. 1250.

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?

Sec. 1245 applies to gains on the sale of depreciable personal property, but it generally does not apply to depreciable real property.

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

Jeremy has $18,000 of Section 1231 gains and $23,000 of Section 1231 losses. The gains and losses are characterized as

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?

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

If Section 1231 applies to the sale or exchange of an unharvested crop sold with land, the costs of producing the crop are

During the current year, Kayla recognizes a $40,000 Section 1231 gain on sale of land and a $22,000 Section 1231 loss on the sale of land. Prior to this, Kayla's only Section 1231 item was a $10,000 loss six years ago. Kayla is in the 28% marginal tax bracket. The amount of tax resulting from these transactions is

Terry has sold equipment used in her business. She acquired the equipment three years ago for $50,000 and has recognized $30,000 of depreciation across the years in use. In order to recognize any Sec. 1231 gain, she must sell the equipment for more than

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)

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