Question 1

For a business,Sec.1231 property does not include

Accepted Answer

A) timber,coal,or domestic iron ore. 
B) inventory purchased 24 months ago. 
C) an office building purchased five years ago. 
D) land used in the business that was purchased two years ago. 
A) timber,coal,or domestic iron ore. 
B) inventory purchased 24 months ago. 
C) an office building purchased five years ago. 
D) land used in the business that was purchased two years ago.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) $6,000 net ordinary income. 
B) $6,000 net Sec.1231 gain treated as a net capital gain. 
C) a LTCG of $10,000 and a 1231 loss of $4,000. 
D) a LTCG of $10,000 and a nondeductible loss of $4,000. 
A) $6,000 net ordinary income. 
B) $6,000 net Sec.1231 gain treated as a net capital gain. 
C) a LTCG of $10,000 and a 1231 loss of $4,000. 
D) a LTCG of $10,000 and a nondeductible loss of $4,000.

Question 4

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 5

The sale of inventory results in ordinary gain or loss.

Accepted Answer

A) True 
 B)False

Question 6

Daniel recognizes $35,000 of Sec.1231 gains and $25,000 of Sec.1231 losses during the current year.The only other Sec.1231 item was a $4,000 loss three years ago.This year,Daniel must report

Accepted Answer

A)  $$\begin{array} {| l | l | } 
\hline \text { NLTCG } & \text { Ordinary Income } \
\hline \$ 10,000 & \$ 0\\hline
\end{array}$$ 
B)  $$\begin{array} {| l | l | } 
\hline \text { NLTCG } & \text { Ordinary Income } \
\hline \$ 6,000 & \$ 4,000\\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\hline \text { NLTCG } & \text { Ordinary Income } \
\hline \$ 4,000 & \$ 6,000\\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\hline \text { NLTCG } & \text { Ordinary Income } \
\hline \$ 4,000 & \$ 10,000\\hline
\end{array}$$ 
A)  $$\begin{array} {| l | l | } 
\hline \text { NLTCG } & \text { Ordinary Income } \
\hline \$ 10,000 & \$ 0\\hline
\end{array}$$ 
B)  $$\begin{array} {| l | l | } 
\hline \text { NLTCG } & \text { Ordinary Income } \
\hline \$ 6,000 & \$ 4,000\\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\hline \text { NLTCG } & \text { Ordinary Income } \
\hline \$ 4,000 & \$ 6,000\\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\hline \text { NLTCG } & \text { Ordinary Income } \
\hline \$ 4,000 & \$ 10,000\\hline
\end{array}$$

Question 7

When corporate and noncorporate taxpayers sell real property placed in service after 1986,all depreciation taken will be taxed at a maximum rate of 25%.

Accepted Answer

A) True 
 B)False

Question 8

An individual taxpayer sells a business building placed in service five years ago and recognizes a gain.This is the taxpayer's first and only sale of Sec.1231 property.Since the gain will be treated as LTCG,the details of the sale should be reported on Schedule D of Form 1040.

Accepted Answer

A) True 
 B)False

Question 9

Lily sells her manufacturing plant and land originally purchased in 1982.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." Lily 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 Lily sells her manufacturing plant and land...

Question 10

Aamir has $25,000 of net Sec.1231 gains this year on business assets.In addition,he incurred $18,000 of loss on the sale of stock held six months.Aamir will include in his AGI

Accepted Answer

A) $3,000 short-term capital loss and $25,000 ordinary gain. 
B) $22,000 net capital gain. 
C) $7,000 net capital gain. 
D) $7,000 short-term capital gain. 
A) $3,000 short-term capital loss and $25,000 ordinary gain. 
B) $22,000 net capital gain. 
C) $7,000 net capital gain. 
D) $7,000 short-term capital gain.

Question 11

During the current year,Kayla recognizes a $40,000 Sec.1231 gain on sale of land and a $22,000 Sec.1231 loss on the sale of land.Prior to this,Kayla's only Sec.1231 item was a $10,000 loss six years ago.Kayla is in the 24% marginal tax bracket.The amount of tax resulting from these transactions is

Accepted Answer

A) $2,700. 
B) $3,600. 
C) $4,000. 
D) $5,040. 
A) $2,700. 
B) $3,600. 
C) $4,000. 
D) $5,040.

Question 12

Gains and losses resulting from condemnations of Sec.1231 property and capital assets held more than one year are classified as ordinary gains and losses.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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.

Accepted Answer

A) True 
 B)False

Question 15

Why did Congress establish favorable treatment for 1231 assets?

Accepted Answer

A) to encourage the mobility of capital 
B) to allow a larger deduction for losses 
C) to help business owners replace assets which had declined in value 
D) all of the above 
A) to encourage the mobility of capital 
B) to allow a larger deduction for losses 
C) to help business owners replace assets which had declined in value 
D) all of the above

Exam 29: Property Transactions: Sec1231 and Recapture

For a business,Sec.1231 property does not include

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

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.

The sale of inventory results in ordinary gain or loss.

Daniel recognizes $35,000 of Sec.1231 gains and $25,000 of Sec.1231 losses during the current year.The only other Sec.1231 item was a $4,000 loss three years ago.This year,Daniel must report

When corporate and noncorporate taxpayers sell real property placed in service after 1986,all depreciation taken will be taxed at a maximum rate of 25%.

An individual taxpayer sells a business building placed in service five years ago and recognizes a gain.This is the taxpayer's first and only sale of Sec.1231 property.Since the gain will be treated as LTCG,the details of the sale should be reported on Schedule D of Form 1040.

Aamir has $25,000 of net Sec.1231 gains this year on business assets.In addition,he incurred $18,000 of loss on the sale of stock held six months.Aamir will include in his AGI

During the current year,Kayla recognizes a $40,000 Sec.1231 gain on sale of land and a $22,000 Sec.1231 loss on the sale of land.Prior to this,Kayla's only Sec.1231 item was a $10,000 loss six years ago.Kayla is in the 24% marginal tax bracket.The amount of tax resulting from these transactions is

Gains and losses resulting from condemnations of Sec.1231 property and capital assets held more than one year are classified as ordinary gains and losses.

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

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.

Why did Congress establish favorable treatment for 1231 assets?

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

U.S. Taxation of Foreign-Related Transactions

an Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Deductions and Losses

Business Expenses and Deferred Compensation

Itemized Deductions

Losses and Bad Debts

Depreciation,cost Recovery,amortization,and Depletion

Accounting Periods and Methods

Property Transactions: Nontaxable Exchanges

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

Tax Research

Corporations

Partnerships and S Corporations

Taxes and Investment Planning

Filters