Question 1

Explain whether the saleat a loss of a machine used in a trade or business generates an ordinary or capital loss?

Accepted Answer

The sale at a loss of a machine used in a trade or business generates an ordinary loss.
A machine is a §1231 asset if used in a trade or business and held for more than one year. The character of a net §1231 loss is ordinary. A gain on the sale of a §1231 asset can generate ordinary income from depreciation recapture or capital gain if the gain exceeds the depreciation taken. If the machine is used in a trade or business and sold for a gain within the first year, the character of the gain is also ordinary.

Question 2

Which of the following sections does not recapture or recharacterize a taxpayer's gain?

Accepted Answer

A) §1239. 
B) §1250. 
C) §1245. 
D) §291. 
E) None of the choices are correct. 
A) §1239. 
B) §1250. 
C) §1245. 
D) §291. 
E) None of the choices are correct. E

Question 3

The sale for more than the original cost basis (before depreciation)of machinery used in a trade or business and held for more than one year results in which of the following types of gain or loss?

Accepted Answer

A) Capital and ordinary. 
B) Ordinary only. 
C) Capital and §1231. 
D) §1245 and §1231. 
E) None of the choices are correct. 
A) Capital and ordinary. 
B) Ordinary only. 
C) Capital and §1231. 
D) §1245 and §1231. 
E) None of the choices are correct. D

Question 4

A net §1231 gain becomes ordinary while a net §1231 loss becomes long-term capital gain.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is not usually included in an asset's tax basis?

Accepted Answer

A) Purchase price. 
B) Sales tax. 
C) Shipping costs. 
D) Installation costs. 
E) None of the choices are correct. 
A) Purchase price. 
B) Sales tax. 
C) Shipping costs. 
D) Installation costs. 
E) None of the choices are correct.

Question 6

An installment sale is any sale where at least a portion of the sale proceeds is received in a subsequent taxable year.

Accepted Answer

A) True 
 B)False

Question 7

Sunshine LLC sold furniture for $75,500. Sunshine bought the furniture for $89,900 several years ago and has claimed $24,950 of depreciation expense on the machine. What is the amount and character of Sunshine's gain or loss?

Accepted Answer

${{[a(5)]:#,###}} ordinary gai

Question 8

Bateman Corporation sold an office building that it used in its business for $800,750. Bateman bought the building 10 years ago for $599,625 and has claimed $201,125 of depreciation expense. What is the amount and character of Bateman's gain or loss?

Accepted Answer

A) $40,225 ordinary and $362,025 §1231 gain. 
B) $201,125 ordinary and $201,125 §1231 gain. 
C) $402,250 ordinary gain. 
D) $402,250 capital gain. 
E) None of the choices are correct. 
A) $40,225 ordinary and $362,025 §1231 gain. 
B) $201,125 ordinary and $201,125 §1231 gain. 
C) $402,250 ordinary gain. 
D) $402,250 capital gain. 
E) None of the choices are correct.

Question 9

Koch traded Machine 1 for Machine 2when 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 10

All tax gains and losses are ultimately characterized as either ordinary or capital.

Accepted Answer

A) True 
 B)False

Question 11

Boot is not like-kind property involved in a like-kind exchange.

Accepted Answer

A) True 
 B)False

Question 12

Manassas purchased a computer several years ago for $2,200. On November 10 th of the current year, the computer was worth $800. If $1,000 of depreciation deductions had been taken, what is Manassas's tax-adjusted basis for the computer?

Accepted Answer

$1,200.
The adjusted

Question 13

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 14

Losses on sales between related parties are realized but not recognized.

Accepted Answer

A) True 
 B)False

Question 15

Depreciation recapture changes both the amount and character of a gain.

Accepted Answer

A) True 
 B)False

Question 16

Brandon, an individual, began business four years ago and has sold §1231 assets with $5,550 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) $20,050 ordinary income and $6,416 tax liability. 
B) $20,050 §1231 gain and $3,008 tax liability. 
C) $6,400 §1231 gain, $13,650 ordinary income, and $5,328 tax liability. 
D) $13,650 §1231 gain, $6,400 ordinary income, and $4,096 tax liability. 
E) None of the choices are correct. 
A) $20,050 ordinary income and $6,416 tax liability. 
B) $20,050 §1231 gain and $3,008 tax liability. 
C) $6,400 §1231 gain, $13,650 ordinary income, and $5,328 tax liability. 
D) $13,650 §1231 gain, $6,400 ordinary income, and $4,096 tax liability. 
E) None of the choices are correct.

Question 17

Accounts receivable and inventory are examples of ordinary assets.

Accepted Answer

A) True 
 B)False

Question 18

Andrew, an individual, began business four years ago and has never sold a §1231 asset. Andrew owned each of the assets for several years. In the current year, Andrew sold the following business assets:
   Assuming Andrew's marginal ordinary income tax rate is 32 percent, what is the character of the gains and losses and what affect do they have on Andrew's tax liability?

Accepted Answer

$4,000 ordinary income and $1,280 of tax

Question 19

Ashburn reported a $105,000 net §1231 gain in Year 6. Assuming Ashburn reported $60,000 of nonrecaptured §1231 losses during Years 1 to 5, what amount of Ashburn's net §1231 gain for Year 6, if any, is treated as ordinary income?

Accepted Answer

A) $0. 
B) $45,000. 
C) $60,000. 
D) $105,000. 
E) None of the choices are correct. 
A) $0. 
B) $45,000. 
C) $60,000. 
D) $105,000. 
E) None of the choices are correct.

Question 20

Which of the following is how gain or loss realized is calculated?

Accepted Answer

A) Cash less selling costs. 
B) Cost basis less cost recovery. 
C) Cash less cost recovery. 
D) Amount realized less adjusted basis. 
E) None of the choices are correct. 
A) Cash less selling costs. 
B) Cost basis less cost recovery. 
C) Cash less cost recovery. 
D) Amount realized less adjusted basis. 
E) None of the choices are correct.

Exam 11: Property Dispositions

Explain whether the saleat a loss of a machine used in a trade or business generates an ordinary or capital loss?

Which of the following sections does not recapture or recharacterize a taxpayer's gain?

The sale for more than the original cost basis (before depreciation)of machinery used in a trade or business and held for more than one year results in which of the following types of gain or loss?

A net §1231 gain becomes ordinary while a net §1231 loss becomes long-term capital gain.

Which of the following is not usually included in an asset's tax basis?

An installment sale is any sale where at least a portion of the sale proceeds is received in a subsequent taxable year.

Sunshine LLC sold furniture for $75,500. Sunshine bought the furniture for $89,900 several years ago and has claimed $24,950 of depreciation expense on the machine. What is the amount and character of Sunshine's gain or loss?

Bateman Corporation sold an office building that it used in its business for $800,750. Bateman bought the building 10 years ago for $599,625 and has claimed $201,125 of depreciation expense. What is the amount and character of Bateman's gain or loss?

All tax gains and losses are ultimately characterized as either ordinary or capital.

Boot is not like-kind property involved in a like-kind exchange.

Manassas purchased a computer several years ago for $2,200. On November 10 th of the current year, the computer was worth $800. If $1,000 of depreciation deductions had been taken, what is Manassas's tax-adjusted basis for the computer?

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?

Losses on sales between related parties are realized but not recognized.

Depreciation recapture changes both the amount and character of a gain.

Accounts receivable and inventory are examples of ordinary assets.

Ashburn reported a $105,000 net §1231 gain in Year 6. Assuming Ashburn reported $60,000 of nonrecaptured §1231 losses during Years 1 to 5, what amount of Ashburn's net §1231 gain for Year 6, if any, is treated as ordinary income?

Which of the following is how gain or loss realized is calculated?

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 Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

Manassas purchased a computer several years ago for $2,200. On November 10 ^th of the current year, the computer was worth $800. If $1,000 of depreciation deductions had been taken, what is Manassas's tax-adjusted basis for the computer?