Question 1

The adjusted basis is the initial basis less cost recovery deductions.

Accepted Answer

A) True 
 B)False

Question 2

When do unrecaptured §1250 gains apply?

Accepted Answer

A) When the taxpayer makes the election. 
B) It applies only when noncorporate taxpayers sell depreciable real property at a gain. 
C) It applies when §1245 recapture trumps §1250 recapture. 
D) It applies only when real property purchased before 1986 is sold at a gain. 
E) None of the choices are correct. 
A) When the taxpayer makes the election. 
B) It applies only when noncorporate taxpayers sell depreciable real property at a gain. 
C) It applies when §1245 recapture trumps §1250 recapture. 
D) It applies only when real property purchased before 1986 is sold at a gain. 
E) None of the choices are correct.

Question 3

For corporations,§291 recaptures 20 percent of the lesser of depreciation taken or the realized gain as ordinary income.

Accepted Answer

A) True 
 B)False

Question 4

Koch traded Machine 1 for Machine 2 when the fair market value of both machines was $50,000.Koch originally purchased Machine 1 for $75,000,and Machine 1's adjusted basis was $40,000 at the time of the exchange.Machine 2's seller purchased it for $65,000 and Machine 2's adjusted basis was $55,000 at the time of the exchange.What is Koch's adjusted basis in Machine 2 after the exchange?

Accepted Answer

A) $40,000. 
B) $50,000. 
C) $55,000. 
D) $75,000. 
E) None of the choices are correct. 
A) $40,000. 
B) $50,000. 
C) $55,000. 
D) $75,000. 
E) None of the choices are correct.

Question 5

Frederique sold furniture that she uses in her business for $15,000.Frederique bought the furniture a few years ago for $40,000 and has claimed $20,000 of depreciation expense.What is the amount and character of Frederique's gain or loss?

Accepted Answer

$5,000 §1231 loss.Th

Question 6

Taxpayers can recognize a taxable gain on the sale of an asset even though an asset's real economic value has declined.

Accepted Answer

A) True 
 B)False

Question 7

Andrea sold a piece of machinery she used in her business for nine months.The amount realized was $50,000 and the adjusted basis was $55,000.What is Andrea's gain or loss realized,and what is the character of the gain or loss?

Accepted Answer

$5,000 ordinary loss.The reali

Question 8

Unrecaptured §1250 gain is taxed at a maximum rate of 25 percent.

Accepted Answer

A) True 
 B)False

Question 9

Gainesville LLC sold the following business assets during the current year: (1)machinery,$20,000 cost basis,$4,000 depreciation,$22,000 proceeds; (2)automobile,$15,000 cost basis,$12,000 depreciation,$7,000 proceeds; (3)equipment,$15,000 cost basis,$10,000 depreciation,$4,000 proceeds; (4)computer equipment,$35,000 cost basis,$16,000 depreciation,$15,000 proceeds; (5)Winchester had unrecaptured §1231 losses of $5,000 in the prior five years.What is the amount and character of Winchester's gains and losses before the 1231 netting process?

Accepted Answer

$8,000 ordinary gain and $3,000 §1231 lo

Question 10

The §1231 look-back rule applies whether there is a net gain or loss.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following results in an ordinary gain or loss?

Accepted Answer

A) Sale of a machine at a gain. 
B) Sale of stock held for investment. 
C) Sale of a §1231 asset. 
D) Sale of inventory. 
E) None of the choices are correct. 
A) Sale of a machine at a gain. 
B) Sale of stock held for investment. 
C) Sale of a §1231 asset. 
D) Sale of inventory. 
E) None of the choices are correct.

Question 12

Bateman Corporation sold an office building that it used in its business for $800,000.Bateman bought the building 10 years ago for $600,000 and has claimed $200,000 of depreciation expense.What is the amount and character of Bateman's gain or loss?

Accepted Answer

A) $40,000 ordinary and $360,000 §1231 gain. 
B) $200,000 ordinary and $200,000 §1231 gain. 
C) $400,000 ordinary gain. 
D) $400,000 capital gain. 
E) None of the choices are correct. 
A) $40,000 ordinary and $360,000 §1231 gain. 
B) $200,000 ordinary and $200,000 §1231 gain. 
C) $400,000 ordinary gain. 
D) $400,000 capital gain. 
E) None of the choices are correct.

Question 13

Ordinary gains and losses are obtained on the sale of investments.

Accepted Answer

A) True 
 B)False

Question 14

§1239 recharacterizes 50 percent of the gain on sales to a related party as ordinary income.

Accepted Answer

A) True 
 B)False

Question 15

What is the character of land used in an active trade or business for two years?

Accepted Answer

A) Capital. 
B) Ordinary. 
C) §1231. 
D) Investment. 
E) None of the choices are correct. 
A) Capital. 
B) Ordinary. 
C) §1231. 
D) Investment. 
E) None of the choices are correct.

Question 16

Which of the following gains does not result solely in an ordinary gain or loss?

Accepted Answer

A) Sale of equipment held for less than a year. 
B) Sale of inventory. 
C) Sale of equipment where the gain realized exceeds the accumulated depreciation. 
D) Sale of equipment where the accumulated depreciation exceeds the gain realized. 
E) None of the choices are correct. 
A) Sale of equipment held for less than a year. 
B) Sale of inventory. 
C) Sale of equipment where the gain realized exceeds the accumulated depreciation. 
D) Sale of equipment where the accumulated depreciation exceeds the gain realized. 
E) None of the choices are correct.

Question 17

In the current year,Raven sold machinery with a fair market value of $200,000.The machinery's original basis was $190,000 and Raven's accumulated depreciation on the machinery was $40,000,so its adjusted basis to Raven was $150,000.Raven received $50,000 in the current year and a note paying Raven $75,000 a year for two years beginning next year.What is the amount and character of the gain that Raven will recognize in the current year?

Accepted Answer

$42,500 gain recognized: $40,000 ordinar

Question 18

Which of the following is not true regarding §1239?

Accepted Answer

A) It only applies to related taxpayers. 
B) It only applies to gains on sales of depreciable property. 
C) It only applies to gains on sales of nonresidential real property. 
D) It does not apply to losses. 
E) None of the choices are correct. 
A) It only applies to related taxpayers. 
B) It only applies to gains on sales of depreciable property. 
C) It only applies to gains on sales of nonresidential real property. 
D) It does not apply to losses. 
E) None of the choices are correct.

Question 19

Brandon,an individual,began business four years ago and has sold §1231 assets with $5,000 of losses within the last five years.Brandon owned each of the assets for several years.In the current year,Brandon sold the following business assets:   Assuming Brandon's marginal ordinary income tax rate is 32 percent,what effect do the gains and losses have on Brandon's tax liability?
Use dividends and capital gains tax rates for reference.

Accepted Answer

A) $25,000 ordinary income and $8,000 tax liability. 
B) $25,000 §1231 gain and $3,750 tax liability. 
C) $13,000 §1231 gain,$12,000 ordinary income,and $5,790 tax liability. 
D) $12,000 §1231 gain,$13,000 ordinary income,and $5,960 tax liability. 
E) None of the choices are correct. 
A) $25,000 ordinary income and $8,000 tax liability. 
B) $25,000 §1231 gain and $3,750 tax liability. 
C) $13,000 §1231 gain,$12,000 ordinary income,and $5,790 tax liability. 
D) $12,000 §1231 gain,$13,000 ordinary income,and $5,960 tax liability. 
E) None of the choices are correct.

Question 20

Sumner sold equipment that it uses in its business for $30,000.Sumner bought the equipment a few years ago for $80,000 and has claimed $40,000 of depreciation expense.Assuming that this is Sumner's only disposition during the year,what is the amount and character of Sumner's gain or loss?

Accepted Answer

A) $10,000 §1231 loss. 
B) $10,000 §1245 loss. 
C) $50,000 ordinary loss. 
D) $10,000 capital loss. 
E) None of the choices are correct. 
A) $10,000 §1231 loss. 
B) $10,000 §1245 loss. 
C) $50,000 ordinary loss. 
D) $10,000 capital loss. 
E) None of the choices are correct.

Exam 11: Property Dispositions

The adjusted basis is the initial basis less cost recovery deductions.

When do unrecaptured §1250 gains apply?

For corporations,§291 recaptures 20 percent of the lesser of depreciation taken or the realized gain as ordinary income.

Frederique sold furniture that she uses in her business for $15,000.Frederique bought the furniture a few years ago for $40,000 and has claimed $20,000 of depreciation expense.What is the amount and character of Frederique's gain or loss?

Taxpayers can recognize a taxable gain on the sale of an asset even though an asset's real economic value has declined.

Andrea sold a piece of machinery she used in her business for nine months.The amount realized was $50,000 and the adjusted basis was $55,000.What is Andrea's gain or loss realized,and what is the character of the gain or loss?

Unrecaptured §1250 gain is taxed at a maximum rate of 25 percent.

The §1231 look-back rule applies whether there is a net gain or loss.

Which of the following results in an ordinary gain or loss?

Bateman Corporation sold an office building that it used in its business for $800,000.Bateman bought the building 10 years ago for $600,000 and has claimed $200,000 of depreciation expense.What is the amount and character of Bateman's gain or loss?

Ordinary gains and losses are obtained on the sale of investments.

§1239 recharacterizes 50 percent of the gain on sales to a related party as ordinary income.

What is the character of land used in an active trade or business for two years?

Which of the following gains does not result solely in an ordinary gain or loss?

Which of the following is not true regarding §1239?

Sumner sold equipment that it uses in its business for $30,000.Sumner bought the equipment a few years ago for $80,000 and has claimed $40,000 of depreciation expense.Assuming that this is Sumner's only disposition during the year,what is the amount and character of Sumner's gain or loss?

An Introduction to Tax

Tax Compliance,the Irs,and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview,dependents,and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income,deductions,and Accounting Methods

Property Acquisition and Cost Recovery

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation,reorganization,and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Ustaxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters