Question 1

Sec. 1245 can increase the amount of gain recognized on an asset.

Accepted Answer

A) True 
 B)False

Question 2

In 1980, Artima Corporation purchased an office building for $400,000 for use in its business. The building is sold during the current year for $550,000. Total depreciation allowed for the building was $390,000; straight-line would have been $360,000. As result of the sale, how much section 1231 gain will Artima Corporation report?

Accepted Answer

A)  $150,000 
B)  $398,000 
C)  $510,000 
D)  $540,000 
A)  $150,000 
B)  $398,000 
C)  $510,000 
D)  $540,000

Question 3

Yelenis, whose tax rate is 28%, sells one Sec. 1231 asset this year, resulting in a $50,000 gain. Included in the $50,000 Sec. 1231 gain is $30,000 of unrecaptured Sec. 1250 gain. A review of Yelenis tax files for the past five years indicates one prior Sec. 1231 sale which resulted in a $14,000 loss. The gain will be taxed as

Accepted Answer

A)  $$\begin{array} { | l | l | l | } 
\hline 15 \% & 25 \% & 28 \% \
\hline \$ 20,000 & \$ 16,000 & \$ 0 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | l | } 
\hline 15 \% & 25 \% & 28 \% \
\hline\$ 20,000 & \$ 16,000 & \$ 14,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | l | } 
\hline 15 \% & 25 \% & 28 \% \
\hline \$ 6,000 & \$ 30,000 & \$ 0 \
\hline
\end{array}$$ 
D)  $\begin{array}{|l|l|l|}
\hline15 \% & 25 \% & 28 \% \
\hline \$ 6,000 & \$ 30,000 & \$ 14,000 \
\hline
\end{array}$ 
A)  $$\begin{array} { | l | l | l | } 
\hline 15 \% & 25 \% & 28 \% \
\hline \$ 20,000 & \$ 16,000 & \$ 0 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | l | } 
\hline 15 \% & 25 \% & 28 \% \
\hline\$ 20,000 & \$ 16,000 & \$ 14,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | l | } 
\hline 15 \% & 25 \% & 28 \% \
\hline \$ 6,000 & \$ 30,000 & \$ 0 \
\hline
\end{array}$$ 
D)  $\begin{array}{|l|l|l|}
\hline15 \% & 25 \% & 28 \% \
\hline \$ 6,000 & \$ 30,000 & \$ 14,000 \
\hline
\end{array}$

Question 4

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

Accepted Answer

A)  $0. 
B)  $400. 
C)  $600. 
D)  $1,120. 
A)  $0. 
B)  $400. 
C)  $600. 
D)  $1,120.

Question 5

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)?

Accepted Answer

\[\begin{array} { | l | r | }  
\hline \

Question 6

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.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A)  recognition of a Sec. 1231 gain of $130,000. 
B)  no recognition of gain or loss since the timber is used in the business. 
C)  recognition of a gain at the time of sale if the timber is later sold with the gain equal to the sales price less the basis in the timber. 
D)  recognition of a gain if the timber is later sold with the gain equal to the sales price less $280,000 (FMV on the first day of the year of the cutting). 
A)  recognition of a Sec. 1231 gain of $130,000. 
B)  no recognition of gain or loss since the timber is used in the business. 
C)  recognition of a gain at the time of sale if the timber is later sold with the gain equal to the sales price less the basis in the timber. 
D)  recognition of a gain if the timber is later sold with the gain equal to the sales price less $280,000 (FMV on the first day of the year of the cutting).

Question 8

Section 1245 recapture applies to all the following except

Accepted Answer

A)  depreciable personal property. 
B)  assets sold or exchanged at a loss. 
C)  total depreciation or amortization allowed or allowable. 
D)  amortizable intangible personal property. 
A)  depreciable personal property. 
B)  assets sold or exchanged at a loss. 
C)  total depreciation or amortization allowed or allowable. 
D)  amortizable intangible personal property.

Question 9

Sec. 1245 ordinary income recapture can apply to buildings placed in service prior to 1987.

Accepted Answer

A) True 
 B)False

Question 10

All of the following statements are true regarding Sec. 1245 are true except

Accepted Answer

A)  Sec. 1245 does not apply to any buildings placed in service after 1986. 
B)  Sec. 1245 applies to assets sold or exchanged at a gain or at a loss. 
C)  Sec. 1245 property includes nonresidential real estate that qualified as recovery property under the ACRS rules unless the taxpayer elected to use the straight-line method of cost recovery. 
D)  Sec. 1245 ordinary gain treatment applies to total depreciation or amortization allowed or allowable but not more than the realized gain. 
A)  Sec. 1245 does not apply to any buildings placed in service after 1986. 
B)  Sec. 1245 applies to assets sold or exchanged at a gain or at a loss. 
C)  Sec. 1245 property includes nonresidential real estate that qualified as recovery property under the ACRS rules unless the taxpayer elected to use the straight-line method of cost recovery. 
D)  Sec. 1245 ordinary gain treatment applies to total depreciation or amortization allowed or allowable but not more than the realized gain.

Question 11

If no gain is recognized in a nontaxable like-kind exchange involving Sec. 1245 or Sec. 1250 property, the recapture potential carries over to the replacement property.

Accepted Answer

A) True 
 B)False

Question 12

An unincorporated business sold two warehouses during the current year. The straight-line depreciation method was used for Building No. 1 and the accelerated method (ACRS) was used for Building No. 2. Information about those buildings is presented below.
 $\begin{array}{lcc}
&\text { Building No. } 1&\text { Building No. } 2\
\text { Date acquired } & 1984 & 1984 \
\text { Cost } & \$ 510,000 & \$ 650,000
\end{array}$
 Accum. Depreciation
 $\begin{array}{ll}
\text { Straight-line } & 510,000 \
\text { ACRS depreciation } &&650,000 \
\text { Selling Price } & 750,000&825,000
\end{array}$
 How much gain from these sales should be reported as section 1231 gain and ordinary income due to depreciation recapture?

Accepted Answer

Building No. 2 is considered Sec. 1245 p

Question 13

In 2016, Thomas, who has a marginal tax rate of 15%, sells land that is Sec. 1231 property at a gain of $4,000. If he has no other 1231 transactions or capital asset transactions and has no nonrecaptured 1231 gain, Thomas will pay no tax on the $4,000 gain.

Accepted Answer

A) True 
 B)False

Question 14

This year Jenna had the gains and losses noted below on property, plant and equipment used in her business. Each asset had been held longer than one year. Jenna has not previously disposed of any business assets. $\begin{array}{|l|r|}
\hline \text { Loss due to insurance reimbursement for fire } & \$(17,000) \
\hline \text { Loss due to condemnation } & (12,000) \
\hline \text { Gain on sale of Sec. } 1231 \text { property } & 21,000\\hline 
\end{array}$ Jenna will recognize

Accepted Answer

A)  $$\begin{array} { | r | r | } 
\hline \text { Ordinary gain (loss) } & \text { LTCG(L) } \
\hline \$ ( 17,000 ) & \$ 9,000 \
\hline
\end{array}$$ 
B)  $\begin{array}{|r|r|}
\hline\text { Ordinary gain (loss) } & \text { LTCG(L) } \
\hline \$(29,000) & \$ 21,000 \
\hline
\end{array}$ 
C)  $\begin{array}{|r|r|}
\hline\text { Ordinary gain (loss) } & \text { LTCG(L) } \
\hline \$(8,000) & \$ 0 \
\hline
\end{array}$ 
D)  $$\begin{array} { | r | r | } 
\hline \text { Ordinary gain (loss) } & \text { LTCG(L) } \
\hline \$ ( 12,000 ) & \$ 4,000 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | r | r | } 
\hline \text { Ordinary gain (loss) } & \text { LTCG(L) } \
\hline \$ ( 17,000 ) & \$ 9,000 \
\hline
\end{array}$$ 
B)  $\begin{array}{|r|r|}
\hline\text { Ordinary gain (loss) } & \text { LTCG(L) } \
\hline \$(29,000) & \$ 21,000 \
\hline
\end{array}$ 
C)  $\begin{array}{|r|r|}
\hline\text { Ordinary gain (loss) } & \text { LTCG(L) } \
\hline \$(8,000) & \$ 0 \
\hline
\end{array}$ 
D)  $$\begin{array} { | r | r | } 
\hline \text { Ordinary gain (loss) } & \text { LTCG(L) } \
\hline \$ ( 12,000 ) & \$ 4,000 \
\hline
\end{array}$$

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Jesse installed solar panels in front of his office building in 2015. 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?

Accepted Answer

Are the solar panels 1245 or 1250 proper

Question 17

Melissa acquired oil and gas properties for $600,000. During 2015 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?

Accepted Answer

a. Melissa has realized gain of $150,000

Question 18

With respect to residential rental property

Accepted Answer

A)  80% or more of the gross rental income from the building or structure must be rental income from dwelling units in order for it to be classified as residential rental property. 
B)  hotels are not included in this category if less than half of the units are used on a transient basis. 
C)  80% or more of the net rental income from the building or structure must be rental income from dwelling units in order for it to be classified as residential rental property. 
D)  gain is not subject to the depreciation recapture provisions if the property is held more than one year. 
A)  80% or more of the gross rental income from the building or structure must be rental income from dwelling units in order for it to be classified as residential rental property. 
B)  hotels are not included in this category if less than half of the units are used on a transient basis. 
C)  80% or more of the net rental income from the building or structure must be rental income from dwelling units in order for it to be classified as residential rental property. 
D)  gain is not subject to the depreciation recapture provisions if the property is held more than one year.

Question 19

Sarah owned land with a FMV of $150,000 (adjusted basis $135,000) which is investment property (a capital asset). Sarah owned a second tract of land, a 1231 asset, with a FMV of $38,000 (adjusted basis $55,000). Both tracts were acquired in 2000 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, what is the amount that Sarah must report on her current year return?

Accepted Answer

The $15,000 gain ($150,000 - $135,000) o

Question 20

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 2012 and is used in a trade or business. There are no other gains and losses and no nonrecaptured Section 1231 losses.
 $\begin{array}{lll}
&\text {Original Basis}&\text {Adjusted Basis}\
\text { Land } & \$ 350,000 & \$ 350,000 \
\text { Equipment 1 } & \$ 600,000 & \$ 450,000 \
\text { Equipment 2 } & \$ 600,000 & \$ 500,000 \
\text { Building } & \$ 550,000 & \$ 450,000
\end{array}$

Accepted Answer

• Land: $150,000 Section 1231 gain taxed

Sec. 1245 can increase the amount of gain recognized on an asset.

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

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.

Section 1245 recapture applies to all the following except

Sec. 1245 ordinary income recapture can apply to buildings placed in service prior to 1987.

All of the following statements are true regarding Sec. 1245 are true except

If no gain is recognized in a nontaxable like-kind exchange involving Sec. 1245 or Sec. 1250 property, the recapture potential carries over to the replacement property.

In 2016, Thomas, who has a marginal tax rate of 15%, sells land that is Sec. 1231 property at a gain of $4,000. If he has no other 1231 transactions or capital asset transactions and has no nonrecaptured 1231 gain, Thomas will pay no tax on the $4,000 gain.

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

With respect to residential rental 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

Filters

Exam 28: Property Transactions: Section 1231 and Recapture

Sec. 1245 can increase the amount of gain recognized on an asset.

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

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.

Section 1245 recapture applies to all the following except

Sec. 1245 ordinary income recapture can apply to buildings placed in service prior to 1987.

All of the following statements are true regarding Sec. 1245 are true except

If no gain is recognized in a nontaxable like-kind exchange involving Sec. 1245 or Sec. 1250 property, the recapture potential carries over to the replacement property.

In 2016, Thomas, who has a marginal tax rate of 15%, sells land that is Sec. 1231 property at a gain of $4,000. If he has no other 1231 transactions or capital asset transactions and has no nonrecaptured 1231 gain, Thomas will pay no tax on the $4,000 gain.

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

With respect to residential rental 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

Filters