Question 1

Gain due to depreciation recapture is included in the netting of Sec.1231 gains and losses.

Accepted Answer

A) True 
 B)False

Question 2

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.Because it is fully depreciated,there is no "additional depreciation." Julie is in the 37% marginal tax bracket.Other information is as follows:
Property Original cost Total depreciation Adjusted basis Selling price
Plant $2,800,000 $2,800,000 $0 $3,000,000
Land $ 500,000 $500,000 $800,000
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

The answer of Julie sells her manufacturing plant and land...

Question 3

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

Accepted Answer

A)  $$\begin{array} { | l | l | l | l | } 
\hline \text { Capital Gain } & \text { Capital Loss } & \begin{array} { l } 
\text { Ordinary } \
\text { Income }
\end{array} & \text { Ordinary Loss } \
\hline & & \$ 18,000 & \$ 23,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | l | l | } 
\hline \text { Capital Gain } & \text { Capital Loss } & \begin{array} { l } 
\text { Ordinary } \
\text { Income }
\end{array} & \text { Ordinary Loss } \
\hline \$ 18,000 & & & \$ 23,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | l | l | } 
\hline \text { Capital Gain } & \text { Capital Loss } & \begin{array} { l } 
\text { Ordinary } \
\text { Income }
\end{array} & \text { Ordinary Loss } \
\hline \$ 18,000 & \$ 23,000 & & \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | l | l | } 
\hline \text { Capital Gain } & \text { Capital Loss } & \begin{array} { l } 
\text { Ordinary } \
\text { Cncome }
\end{array} & \text { Ordinary Loss } \
\hline \$ 18,000 & \$ 3,000 & & \$ 20,000 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | l | l | l | l | } 
\hline \text { Capital Gain } & \text { Capital Loss } & \begin{array} { l } 
\text { Ordinary } \
\text { Income }
\end{array} & \text { Ordinary Loss } \
\hline & & \$ 18,000 & \$ 23,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | l | l | } 
\hline \text { Capital Gain } & \text { Capital Loss } & \begin{array} { l } 
\text { Ordinary } \
\text { Income }
\end{array} & \text { Ordinary Loss } \
\hline \$ 18,000 & & & \$ 23,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | l | l | } 
\hline \text { Capital Gain } & \text { Capital Loss } & \begin{array} { l } 
\text { Ordinary } \
\text { Income }
\end{array} & \text { Ordinary Loss } \
\hline \$ 18,000 & \$ 23,000 & & \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | l | l | } 
\hline \text { Capital Gain } & \text { Capital Loss } & \begin{array} { l } 
\text { Ordinary } \
\text { Cncome }
\end{array} & \text { Ordinary Loss } \
\hline \$ 18,000 & \$ 3,000 & & \$ 20,000 \
\hline
\end{array}$$

Question 4

Ross purchased a building in 1985,which he uses in his manufacturing business.Ross used the ACRS statutory rates to determine the cost-recovery deduction for the building.Ross's original cost for the building is $500,000 and cost-recovery deductions allowed are $500,000.If the building is sold for $340,000,the tax results to Ross are

Accepted Answer

A) $340,000 LTCG. 
B) $340,000 Sec.1231 gain. 
C) $340,000 Sec.1245 ordinary income. 
D) $340,000 Sec.1250 ordinary income. 
A) $340,000 LTCG. 
B) $340,000 Sec.1231 gain. 
C) $340,000 Sec.1245 ordinary income. 
D) $340,000 Sec.1250 ordinary income.

Question 5

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.

Accepted Answer

A) True 
 B)False

Question 6

A taxpayer purchased a factory building in 1985 for $800,000.After claiming ACRS-accelerated depreciation of $800,000,she sells the asset for $1,000,000 during the current year.No payment is received during the current year,and the $1,000,000 balance to be paid with interest at the interest rate in four annual payments beginning one year from date of sale.The installment sales method is adopted.How much ordinary income is recognized in the current year?

Accepted Answer

A) $0 
B) $200,000 
C) $800,000 
D) $1,000,000 
A) $0 
B) $200,000 
C) $800,000 
D) $1,000,000

Question 7

In 2019,Thomas,a single taxpayer who has a marginal tax rate of 10%,sells land that is Sec.1231 property at a gain of $4,000.This is the first time Thomas has ever sold a Sec.1231 asset.If he has no other 1231 transactions or capital asset transactions,Thomas will pay no tax on the $4,000 gain.

Accepted Answer

A) True 
 B)False

Question 8

Eric purchased a building in 2008 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

Accepted Answer

A) $260,000 Sec.1231 gain,all taxable at 20%. 
B) $260,000 unrecaptured Sec.1250 gain,all taxable at 25%. 
C) $260,000 Sec.1231 gain,of which $120,000 is unrecaptured Sec.1250 gain taxable at 25% and the $140,000 balance is taxable at 20%. 
D) $120,000 Sec.1245 ordinary income,$140,000 Sec.1231 gain taxable at 20%. 
A) $260,000 Sec.1231 gain,all taxable at 20%. 
B) $260,000 unrecaptured Sec.1250 gain,all taxable at 25%. 
C) $260,000 Sec.1231 gain,of which $120,000 is unrecaptured Sec.1250 gain taxable at 25% and the $140,000 balance is taxable at 20%. 
D) $120,000 Sec.1245 ordinary income,$140,000 Sec.1231 gain taxable at 20%.

Question 9

Pierce has a $16,000 Sec.1231 loss,a $12,000 Sec.1231 gain,and a salary of $50,000.What is the treatment of these items in Pierce's AGI?

Accepted Answer

A) Pierce has a LTCG of $12,000 and a net ordinary income of $34,000. 
B) The 1231 gains and losses are treated as ordinary gains and losses making Pierce's AGI for the year $46,000. 
C) Pierce has a $3,000 LTCL which is deductible for AGI making AGI $47,000.He also has a $1,000 LTCL carryover. 
D) Pierce has net LTCG of $9,000 and $37,000 of net ordinary income. 
A) Pierce has a LTCG of $12,000 and a net ordinary income of $34,000. 
B) The 1231 gains and losses are treated as ordinary gains and losses making Pierce's AGI for the year $46,000. 
C) Pierce has a $3,000 LTCL which is deductible for AGI making AGI $47,000.He also has a $1,000 LTCL carryover. 
D) Pierce has net LTCG of $9,000 and $37,000 of net ordinary income.

Question 10

A taxpayer acquired new machinery costing $50,000 three years ago.The taxpayer had elected Sec.179 expensing to deduct the full cost in the year of acquisition.The taxpayer sells the machinery this year and realizes a $32,000 gain.Sec.1245 will not require any ordinary income recapture on the sale of this asset due to the Sec.179 expensing.

Accepted Answer

A) True 
 B)False

Question 11

Sec.1231 property will generally have all the following characteristics except

Accepted Answer

A) real or depreciable property. 
B) used in trade or business. 
C) held for sale to customers. 
D) held for more than one year. 
A) real or depreciable property. 
B) used in trade or business. 
C) held for sale to customers. 
D) held for more than one year.

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

A taxpayer has a gain on Sec.1245 property.None of the gain will be treated as Sec.1231 gain unless the sale price exceeds the original cost.

Accepted Answer

A) True 
 B)False

Question 14

Rontco Corporation (a C corporation)purchased an office building for $400,000 for use in its business about ten years ago.The building is sold during the current year for $350,000.Total MACRS depreciation allowed for the building was $125,000.This is the only business asset sold by the corporation over the past six years.As result of the sale,how much ordinary gain will Rontco Corporation report?

Accepted Answer

A) $15,000 
B) $25,000 
C) $75,000 
D) $0 
A) $15,000 
B) $25,000 
C) $75,000 
D) $0

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

Alejandro purchased a building in 1985,which he uses in his manufacturing business.Alejandro used the ACRS statutory rates to determine the cost-recovery deduction for the building.Alejandro's original cost for the building is $500,000 and cost-recovery deductions allowed are $500,000.If the building is sold for $800,000,the tax results to Alejandro are

Accepted Answer

A) $500,000 Sec.1245 ordinary income and $300,000 Sec.1231 gain. 
B) $800,000 Sec.1245 ordinary income. 
C) $500,000 Sec.1245 ordinary income and $300,000 Sec.1250 income. 
D) $800,000 Sec.1231 gain. 
A) $500,000 Sec.1245 ordinary income and $300,000 Sec.1231 gain. 
B) $800,000 Sec.1245 ordinary income. 
C) $500,000 Sec.1245 ordinary income and $300,000 Sec.1250 income. 
D) $800,000 Sec.1231 gain.

Question 17

In 1980,Mr.Lyle purchased a factory building to use in business for $480,000.When Mr.Lyle sells the building for $580,000,he has taken depreciation of $470,000.Straight-line depreciation would have been $400,000.Mr.Lyle must report

Accepted Answer

A) $570,000 of ordinary gain. 
B) $570,000 of Sec.1231 gain. 
C) $70,000 of ordinary income and $500,000 of Sec.1231 gain. 
D) $470,000 of ordinary gain and $100,000 of Sec.1231 gain. 
A) $570,000 of ordinary gain. 
B) $570,000 of Sec.1231 gain. 
C) $70,000 of ordinary income and $500,000 of Sec.1231 gain. 
D) $470,000 of ordinary gain and $100,000 of Sec.1231 gain.

Question 18

Unrecaptured 1250 gain is the amount of long-term capital gain which would be taxed as ordinary income if Sec.1250 provided for the recapture of all depreciation and not just additional depreciation.

Accepted Answer

A) True 
 B)False

Question 19

Sec.1231 property must satisfy a holding period of more than one year.

Accepted Answer

A) True 
 B)False

Question 20

Harry owns equipment ($50,000 basis and $38,000 FMV)and a building ($140,000 basis and $156,000 FMV),which are used in his business.The two assets were acquired five years ago.Both the equipment and the building are destroyed in a fire,and Harry collects insurance proceeds equal to the assets' FMV.The tax result to Harry for this transaction is

Accepted Answer

A) the involuntary conversions are treated as ordinary gains and losses. 
B) the involuntary conversions are treated as Sec.1231 gains and losses. 
C) the loss on involuntary conversion is treated as a Sec.1231 loss while the gain is treated as an ordinary gain. 
D) the loss on involuntary conversion is treated as an ordinary loss while the gain is treated as a Sec.1231 gain. 
A) the involuntary conversions are treated as ordinary gains and losses. 
B) the involuntary conversions are treated as Sec.1231 gains and losses. 
C) the loss on involuntary conversion is treated as a Sec.1231 loss while the gain is treated as an ordinary gain. 
D) the loss on involuntary conversion is treated as an ordinary loss while the gain is treated as a Sec.1231 gain.

Exam 29: Property Transactions: Sec1231 and Recapture

Gain due to depreciation recapture is included in the netting of Sec.1231 gains and losses.

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

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.

In 2019,Thomas,a single taxpayer who has a marginal tax rate of 10%,sells land that is Sec.1231 property at a gain of $4,000.This is the first time Thomas has ever sold a Sec.1231 asset.If he has no other 1231 transactions or capital asset transactions,Thomas will pay no tax on the $4,000 gain.

Pierce has a $16,000 Sec.1231 loss,a $12,000 Sec.1231 gain,and a salary of $50,000.What is the treatment of these items in Pierce's AGI?

Sec.1231 property will generally have all the following characteristics except

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 taxpayer has a gain on Sec.1245 property.None of the gain will be treated as Sec.1231 gain unless the sale price exceeds the original cost.

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.

In 1980,Mr.Lyle purchased a factory building to use in business for $480,000.When Mr.Lyle sells the building for $580,000,he has taken depreciation of $470,000.Straight-line depreciation would have been $400,000.Mr.Lyle must report

Unrecaptured 1250 gain is the amount of long-term capital gain which would be taxed as ordinary income if Sec.1250 provided for the recapture of all depreciation and not just additional depreciation.

Sec.1231 property must satisfy a holding period of more than one year.

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