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. \[\begin{array} { | l | r | r | } \hline & \text { Building No. 1 } & \text { Building No. 2 } \\ \hline \text { Date acquired } & { 1986 } & 1986 \\ \hline \text { Cost } & \$ 800,000 & \$ 900,000 \\ \hline \text { Accum. Depreciation } & & \\ \text { Straight-line } & 800,000 & \\ \hline \text { ACRS depreciation } & & 900,000 \\ \hline \text { Selling Price } & 80,000 & 400,000 \\ \hline \end{array}\] 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?

A) \[\begin{array} { | l | l | } \hline \text { Section 1231 Gain } & \text { Ordinary Income } \\ \hline\$ 480,000 & \$ 0 \\ \hline \end{array}\] B) $\begin{array}{|l|l|} \hline \text { Section 1231 Gain } & \text { Ordinary Income } \\ \hline 80,000 & \$ 400,000\\\hline \end{array}$ C) \[\begin{array} { | l | l| } \hline\text { Section 1231 Gain } & \text { Ordinary Income } \\ \hline\$ \$ 0 & \$ 480,000 \\ \hline \end{array}\] D) \[\begin{array} {| l | l |} \hline\text { Section 1231 Gain } & \text { Ordinary Income } \\ \hline\$ 400,000 & \$ 80,000 \\ \hline \end{array}\] A) \[\begin{array} { | l | l | } \hline \text { Section 1231 Gain } & \text { Ordinary Income } \\ \hline\$ 480,000 & \$ 0 \\ \hline \end{array}\] B) $\begin{array}{|l|l|} \hline \text { Section 1231 Gain } & \text { Ordinary Income } \\ \hline 80,000 & \$ 400,000\\\hline \end{array}$ C) \[\begin{array} { | l | l| } \hline\text { Section 1231 Gain } & \text { Ordinary Income } \\ \hline\$ \$ 0 & \$ 480,000 \\ \hline \end{array}\] D) \[\begin{array} {| l | l |} \hline\text { Section 1231 Gain } & \text { Ordinary Income } \\ \hline\$ 400,000 & \$ 80,000 \\ \hline \end{array}\]

A corporation sold a warehouse during the current year. The straight-line depreciation method was used. Information about the building is presented below: \[\begin{array} { | l | r | } \hline \text { Date acquired } & 1984 \\ \hline \text { Cost } & \$ 800,000 \\ \hline \text { Accumulated Depreciation - Straight-line } & 620,000 \\ \hline \text { Selling Price } & 890,000 \\ \hline \end{array}\] How much gain should the corporation report as section 1231 gain?

A) $124,000 B) $620,000 C) $586,000 D) $710,000 A) $124,000 B) $620,000 C) $586,000 D) $710,000

Exam 28: Property Transactions: Section 1231 and Recapture

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.

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(True/False)

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Question 1

Correct Answer:

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True

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

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(Multiple Choice)

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Question 2

Correct Answer:

Verified

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.

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Question 3

Correct Answer:

Verified

True

Maura makes a gift of a van to a local food bank run by a charity. Maura had used the van in her trade or business. The van has a FMV of $6,500; a cost of $31,000; and $27,000 depreciation claimed. What is the amount of Maura's charitable contribution deduction?

(Multiple Choice)

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Question 4

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.

(True/False)

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Question 5

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.

(True/False)

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Question 6

Dinah owned land with a FMV of $130,000 (adjusted basis $120,000) which is investment property (a capital asset). Dinah owned a second tract of land, a 1231 asset, with a FMV of $46,000 (adjusted basis $50,000). Both tracts were acquired in 2001 and condemned by the state this year. The state paid an amount equal to FMV. If there are no other transactions involving capital assets or 1231 assets, Dinah must report on her current year return

(Multiple Choice)

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Question 7

Hilton, a single taxpayer in the 28% marginal tax bracket, has $16,000 of nonrecaptured net Sec. 1231 losses, at the beginning of a year in which he had the following transactions: -Sale of Asset A at a $10,000 1231 gain, all of which is unrecaptured Sec. 1250 gain -Sale of Asset B at a $13,000 1231 gain How are the items reported this year and at which rate(s) are the amounts taxed?

(Essay)

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Question 8

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

(True/False)

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Question 9

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. Building No. 1 Building No. 2 Date acquired 1986 1986 Cost \ 800,000 \ 900,000 Accum. Depreciation Straight-line 800,000 ACRS depreciation 900,000 Selling Price 80,000 400,000 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?

(Multiple Choice)

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Question 10

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?

(Essay)

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Question 11

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).

(Essay)

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Question 12

A corporation sold a warehouse during the current year. The straight-line depreciation method was used. Information about the building is presented below: Date acquired 1984 Cost \ 800,000 Accumulated Depreciation - Straight-line 620,000 Selling Price 890,000 How much gain should the corporation report as section 1231 gain?

(Multiple Choice)

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Question 13

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

(Multiple Choice)

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Question 14

If the accumulated depreciation on business equipment held longer than one year exceeds realized gain on the sale of the equipment, all of the realized gain will be treated as Sec. 1231 gain.

(True/False)

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Question 15

Section 1231 property will generally have all the following characteristics except

(Multiple Choice)

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Question 16

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?

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Question 17

Four years ago Otto purchased farmland for $600,000 and spent an additional $40,000 on soil and water conservation which was deducted in the year of purchase. Otto has just sold the land for $900,000. How much of the $300,000 gain will be treated as ordinary income?

(Multiple Choice)

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Question 18

For livestock to be considered Section 1231 property,

(Multiple Choice)

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Question 19

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

(True/False)

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Question 20

Showing 1 - 20 of 115

Exam 28: Property Transactions: Section 1231 and Recapture

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

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.

Maura makes a gift of a van to a local food bank run by a charity. Maura had used the van in her trade or business. The van has a FMV of $6,500; a cost of $31,000; and $27,000 depreciation claimed. What is the amount of Maura's charitable contribution deduction?

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.

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.

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

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

If the accumulated depreciation on business equipment held longer than one year exceeds realized gain on the sale of the equipment, all of the realized gain will be treated as Sec. 1231 gain.

Section 1231 property will generally have all the following characteristics except

Four years ago Otto purchased farmland for $600,000 and spent an additional $40,000 on soil and water conservation which was deducted in the year of purchase. Otto has just sold the land for $900,000. How much of the $300,000 gain will be treated as ordinary income?

For livestock to be considered Section 1231 property,

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

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

an Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Deductions and Losses

Itemized Deductions

Losses and Bad Debts

Employee Expenses and Deferred Compensation

Depreciation, Cost Recovery, Amortization, and Depletion

Accounting Periods and Methods

Property Transactions: Nontaxable Exchanges

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

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