Question 1

Depreciation recapture under § 1245 and § 1250 is reported on Form 4797.

Accepted Answer

A) True 
 B)False  True

Question 2

Section 1231 property generally does not include artistic compositions.

Accepted Answer

A) True 
 B)False  True

Question 3

A business machine purchased April 10,2015,for $62,000 was fully depreciated in 2015 using § 179 immediate expensing.On August 15,2016,the sole proprietor who owned the machine gave it to his son.On that date,the machine's fair market value was $57,000.The son did not use the machine in business or hold it as inventory and the machine was sold on November 22,2016,for $53,000.What is the amount and nature of the gain or loss from disposition of the machine? Where is it reported in the son's tax return?

Accepted Answer

A gift does not extinguish potential § 1245 depreciation recapture potential.The son that received the machine had a $0 basis for the asset because he has a carryover basis from the donor.The father's holding period tacks to the son's holding period;therefore,the son had a long-term holding period on the date of the gift and potential § 1245 depreciation recapture of $57,000 [the lesser of the depreciation taken ($62,000)or the realized gain at the date of the gift ($57,000)].However,since the machine was sold for only $53,000,there is only $53,000 of § 1245 depreciation recapture gain.The son should complete Form 4797 Part III for this transaction and then carry the gain to Part II as ordinary income.

Question 4

Which of the following is correct?

Accepted Answer

A) Improperly classifying a § 1231 loss as a capital loss might affect adjusted gross income. 
B) Improperly classifying a capital loss as a § 1231 loss might affect adjusted gross income. 
C) Misclassifying a § 1231 gain as a short-term capital gain might affect adjusted gross income. 
D) Misclassifying a short-term capital gain as a § 1231 gain might affect adjusted gross income. 
E) All of the above. 
A) Improperly classifying a § 1231 loss as a capital loss might affect adjusted gross income. 
B) Improperly classifying a capital loss as a § 1231 loss might affect adjusted gross income. 
C) Misclassifying a § 1231 gain as a short-term capital gain might affect adjusted gross income. 
D) Misclassifying a short-term capital gain as a § 1231 gain might affect adjusted gross income. 
E) All of the above.

Question 5

Business equipment is purchased on March 10,2015,used in the business until September 29,2015,and sold at a $23,000 loss on October 10,2015.The equipment was not suitable for the work the business had purchased it for.The loss on the disposition should have been reported in the 2015 Form 4797,Part:

Accepted Answer

A) I. 
B) II. 
C) III. 
D) IV. 
E) This transaction would not be reported in the Form 4797. 
A) I. 
B) II. 
C) III. 
D) IV. 
E) This transaction would not be reported in the Form 4797.

Question 6

Verway,Inc. ,has a 2016 net § 1231 gain of $55,000 and had a $62,000 net § 1231 loss in 2015.For 2016,Verway's net § 1231 gain is treated as:

Accepted Answer

A) $55,000 ordinary loss. 
B) $55,000 ordinary gain. 
C) $55,000 capital loss. 
D) $55,000 capital gain. 
E) None of the above. 
A) $55,000 ordinary loss. 
B) $55,000 ordinary gain. 
C) $55,000 capital loss. 
D) $55,000 capital gain. 
E) None of the above.

Question 7

If there is a net § 1231 loss,it is treated as an ordinary loss.

Accepted Answer

A) True 
 B)False

Question 8

Section 1231 lookback losses may convert some or all of § 1245 gain into ordinary income.

Accepted Answer

A) True 
 B)False

Question 9

White Company acquires a new machine for $75,000 and uses it in White's manufacturing operations.A few months after White places the machine in service,it discovers that the machine is not suitable for White's business.White had fully expensed the machine in the year of acquisition using § 179.White sells the machine for $60,000 in the tax year after it was acquired,but held the machine only for a total of 10 months.What was the tax status of the machine when it was disposed of and the amount of the gain or loss?

Accepted Answer

A) A capital asset and $60,000 gain. 
B) An ordinary asset and $60,000 gain. 
C) A § 1231 asset and $60,000 gain. 
D) A § 1231 asset and $60,000 loss. 
E) None of the above. 
A) A capital asset and $60,000 gain. 
B) An ordinary asset and $60,000 gain. 
C) A § 1231 asset and $60,000 gain. 
D) A § 1231 asset and $60,000 loss. 
E) None of the above.

Question 10

An individual had the following gains and losses during 2016 on property held for the long-term holding period: sale of Orange common stock ($8,000 gain);sale of real property used in the taxpayer's business ($1,800 loss);destruction of real property used in the taxpayer's business by fire ($1,000 loss).Which of the following statements is correct?

Accepted Answer

A) The fire loss would reduce the real property sale loss. 
B) The fire loss would reduce the stock sale gain. 
C) The sale of real property loss would be netted against the stock sale gain. 
D) The sale of real property is a § 1231 loss. 
E) None of the above. 
A) The fire loss would reduce the real property sale loss. 
B) The fire loss would reduce the stock sale gain. 
C) The sale of real property loss would be netted against the stock sale gain. 
D) The sale of real property is a § 1231 loss. 
E) None of the above.

Question 11

Casualty gains and losses from nonpersonal use assets are not netted against casualty gains and losses from personal use assets.

Accepted Answer

A) True 
 B)False

Question 12

A personal use property casualty loss is generally deductible only to the extent it exceeds 10% of AGI.

Accepted Answer

A) True 
 B)False

Question 13

In 2016 Angela,a single taxpayer with no dependents,disposed of for $44,000 a business building which cost $100,000.$60,000 of depreciation had been taken on the building.Angela has a short-term capital loss of $3,000 this year.She has taxable income (not related to property transactions)of $125,000.She has no § 1231 lookback loss.What is the amount and nature of the gain or loss,what is Angela's taxable income,and what is her tax on the taxable income?

Accepted Answer

The adjusted basis of the building is $4

Question 14

An individual taxpayer has the gains and losses shown below.There are $3,000 of § 1231 lookback losses.What is the net long-term capital gain?
Holding Period/Property
Character of Gain or Loss
Amount
5 years/vacant land
§ 1231 gain
$7,000
2 years/business equipment
§ 1245 gain
3,200
3 years/publicly traded stock
Long-term capital gain
890
8 months/publicly traded stock
Short-term capital loss
(1,870)

Accepted Answer

The taxpayer has a net long-term capital

Question 15

Section 1250 depreciation recapture will apply when accelerated depreciation was used on property used outside the United States and the property is sold at a gain.

Accepted Answer

A) True 
 B)False

Question 16

The Code contains two major depreciation recapture provisions: § 1245 and § 1250.

Accepted Answer

A) True 
 B)False

Question 17

Section 1231 property generally includes certain purchased intangible assets (such as patents and goodwill)that are eligible for amortization and held for more than one year.

Accepted Answer

A) True 
 B)False

Question 18

Vanna owned an office building that had been held more than one year when it was sold for $567,000.The real estate had an adjusted basis of $45,000 for the land and $233,000 for the building.Straight-line depreciation of $162,000 had been taken on the building.What is the amount and initial character of the gain or loss from disposition of the real estate? Is any of the gain unrecaptured § 1250 (25%)gain?

Accepted Answer

The real estate was used in business and

Question 19

Betty,a single taxpayer with no dependents,has the gains and losses shown below.Before considering these transactions,Betty has $45,000 of other taxable income.What is the treatment of the gains and losses and what is Betty's taxable income?
§ 1245 gain #1
$18,000
§ 1245 gain #2
5,000
Business equipment long-term casualty loss
(8,000)
Business real property long-term casualty gain
12,000
§ 1231 gain
13,000
§ 1231 lookback loss
(2,000)

Accepted Answer

The § 1245 recapture gains are combined

Question 20

Section 1239 (relating to the sale of certain property between related taxpayers)does not apply unless the property:

Accepted Answer

A) Was depreciated by the transferor. 
B) Is depreciable in the hands of the transferee. 
C) Is a capital asset. 
D) Is real property. 
E) None of the above. 
A) Was depreciated by the transferor. 
B) Is depreciable in the hands of the transferee. 
C) Is a capital asset. 
D) Is real property. 
E) None of the above.

Depreciation recapture under § 1245 and § 1250 is reported on Form 4797.

Section 1231 property generally does not include artistic compositions.

Which of the following is correct?

Business equipment is purchased on March 10,2015,used in the business until September 29,2015,and sold at a $23,000 loss on October 10,2015.The equipment was not suitable for the work the business had purchased it for.The loss on the disposition should have been reported in the 2015 Form 4797,Part:

Verway,Inc. ,has a 2016 net § 1231 gain of $55,000 and had a $62,000 net § 1231 loss in 2015.For 2016,Verway's net § 1231 gain is treated as:

If there is a net § 1231 loss,it is treated as an ordinary loss.

Section 1231 lookback losses may convert some or all of § 1245 gain into ordinary income.

Casualty gains and losses from nonpersonal use assets are not netted against casualty gains and losses from personal use assets.

A personal use property casualty loss is generally deductible only to the extent it exceeds 10% of AGI.

Section 1250 depreciation recapture will apply when accelerated depreciation was used on property used outside the United States and the property is sold at a gain.

The Code contains two major depreciation recapture provisions: § 1245 and § 1250.

Section 1231 property generally includes certain purchased intangible assets (such as patents and goodwill)that are eligible for amortization and held for more than one year.

Section 1239 (relating to the sale of certain property between related taxpayers)does not apply unless the property:

An Introduction to Taxation and Understanding the Federal Law

Working With the Tax Law

Tax Formula and Tax Determination an Overview of Property Transactions

Gross Income Concepts and Inclusions

Gross Income Exclusions

Deductions and Losses in General

Deductions and Losses Certain Business Expenses and Losses

Depreciation Cost Recovery Amortization and Depletion

Deductions Employee and Self Employed Related Expenses

Deduction and Losses Certain Itemized Deductions

Investor Losses

Alternative Minimum Tax

Tax Credits and Payment Procedures

Property Transactions Determination of Gain and Loss and Basic Considerations

Property Transactions Nontaxable Exchanges

Property Transactions Capital Gains and Losses

Accounting Periods and Methods

Deferred Compensation

Corporations and Partnerships

Filters

Exam 17: Property Transactions Section 1231 and Recapture Provisions

Depreciation recapture under § 1245 and § 1250 is reported on Form 4797.

Section 1231 property generally does not include artistic compositions.

Which of the following is correct?

Business equipment is purchased on March 10,2015,used in the business until September 29,2015,and sold at a $23,000 loss on October 10,2015.The equipment was not suitable for the work the business had purchased it for.The loss on the disposition should have been reported in the 2015 Form 4797,Part:

Verway,Inc. ,has a 2016 net § 1231 gain of $55,000 and had a $62,000 net § 1231 loss in 2015.For 2016,Verway's net § 1231 gain is treated as:

If there is a net § 1231 loss,it is treated as an ordinary loss.

Section 1231 lookback losses may convert some or all of § 1245 gain into ordinary income.

Casualty gains and losses from nonpersonal use assets are not netted against casualty gains and losses from personal use assets.

A personal use property casualty loss is generally deductible only to the extent it exceeds 10% of AGI.

Section 1250 depreciation recapture will apply when accelerated depreciation was used on property used outside the United States and the property is sold at a gain.

The Code contains two major depreciation recapture provisions: § 1245 and § 1250.

Section 1231 property generally includes certain purchased intangible assets (such as patents and goodwill)that are eligible for amortization and held for more than one year.

Section 1239 (relating to the sale of certain property between related taxpayers)does not apply unless the property:

An Introduction to Taxation and Understanding the Federal Law

Working With the Tax Law

Tax Formula and Tax Determination an Overview of Property Transactions

Gross Income Concepts and Inclusions

Gross Income Exclusions

Deductions and Losses in General

Deductions and Losses Certain Business Expenses and Losses

Depreciation Cost Recovery Amortization and Depletion

Deductions Employee and Self Employed Related Expenses

Deduction and Losses Certain Itemized Deductions

Investor Losses

Alternative Minimum Tax

Tax Credits and Payment Procedures

Property Transactions Determination of Gain and Loss and Basic Considerations

Property Transactions Nontaxable Exchanges

Property Transactions Capital Gains and Losses

Accounting Periods and Methods

Deferred Compensation

Corporations and Partnerships

Filters