Exam 29: Property Transactions: Sec1231 and Recapture

Blair,whose tax rate is 24%,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?

In order to be considered Sec.1231 property,all of the following livestock must be held for 12 months or more from date of acquisition 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?

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

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.

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

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

Echo Corporation plans to sell a small building to Nate,its 65% shareholder.The building was placed in service five years ago.An independent appraisal will be obtained to set the selling price at an appropriate market price,and a $50,000 gain is expected to result.The only asset previously sold by Echo was a stock investment five years ago which resulted in a $40,000 loss.If the sale of the building closes before year-end,the gain on the building will allow recognition of the capital loss carryover before it expires.

Installment sales of depreciable property which result in recaptured income under Secs.1245 or 1250 require that the recaptured income be recognized in the year of sale.

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

Mark owns an unincorporated business and has $20,000 of Sec.1231 gains and $22,000 of Sec.1231 losses.He must report a net capital loss of $2,000 on his tax return.

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

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.Both assets were acquired two years ago.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

Depreciable property placed in service nine months earlier is considered Sec.1231 property.

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?

Trena LLC,a tax partnership owned equally by Trent and Nina,sells a building it had placed in service five years ago.Sec.291 will require that part of the gain (up to 20% of accumulated depreciation)be treated as ordinary gain,with the balance treated as Sec.1231 gain.

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

A taxpayer sells equipment used in her business for $50,000.She purchased the equipment three years ago for $90,000 and claimed $35,000 of depreciation over the three years of usage.The recapture provisions of Sec.1245 will result in the taxpayer recognizing some ordinary income.

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

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.