Exam 17: Property Transactions Section 1231 and Recapture Provisions

Rental use depreciable machinery held more than 12 months is an example of a § 1231 asset.

Property sold to a related party purchaser that is depreciable by the purchaser may cause the seller to have ordinary gain.

Nonrecaptured § 1231 losses from the six prior tax years may cause current year net § 1231 gain to be treated as ordinary income.

The chart below describes the § 1231 assets sold by the Ecru Company (a sole proprietorship)this year.Compute the gain or loss from each asset disposition and determine the net § 1231 gain treated as long-term capital gain for the year.Assume there is a § 1231 lookback loss of $4,000. Asset Acquired Sold Cost Depreciation Sale Price Stamping machine 3/10/12 8/10/2016 $40,000 $29,736 $32,000 Factory building 2/12/09 7/23/2016 80,000 18,838 90,000 Tractor 5/16/11 11/13/2016 52,000 52,000 30,000 Overhead crane 11/12/05 2/25/2016 74,000 74,000 18,000

Section 1231 property generally does not include accounts receivables arising in the ordinary course of business.

An individual has a $40,000 § 1245 gain,a $35,000 § 1231 gain,a $33,000 § 1231 loss,a $3,000 § 1231 lookback loss,and a $15,000 long-term capital gain.The net long-term capital gain is:

Section 1231 applies to the sale or exchange of business properties,but not to personal use activity casualties.

A business taxpayer sold all the depreciable assets of the business,calculated the gains and losses,and would like to know the final character of those gains and losses.The taxpayer had $353,000 of adjusted gross income before considering the gains and losses from sale of the business assets.The taxpayer had unrecaptured § 1231 lookback loss of $12,000.What is the treatment of the gains and losses summarized in the chart below after all possible netting and reclassification has been completed? What is the taxpayer's adjusted gross income? (Ignore the self-employment tax deduction. ) Asset Purchase Date Sale Date Depreciation Gain (Loss) Machine #1 10/10/14 11/11/16 $323,000 $66,000 Machine #2 10/02/14 11/11/16 65,000 (15,000) Machine #3 09/23/12 11/11/16 183,000 23,000 Machine #4 09/23/12 11/11/16 28,000 64,000

A business taxpayer sold all the depreciable assets of the business,calculated the gains and losses,and would like to know the final character of those gains and losses.The taxpayer had $353,000 of adjusted gross income before considering the gains and losses from sale of the business assets.The taxpayer had unrecaptured § 1231 lookback loss of $22,000.What is the treatment of the gains and losses summarized in the chart below after all possible netting and reclassification has been completed? What is the taxpayer's adjusted gross income? (Ignore the self-employment tax deduction. ) Asset Purchase Date Sale Date Depreciation Gain (Loss) Machine #1 10/10/14 11/11/16 $323,000 $66,000 Machine #2 10/02/13 11/11/16 65,000 (15,000) Machine #3 09/23/12 11/11/16 183,000 23,000 Machine #4 09/23/12 11/11/16 28,000 34,000

Section 1231 property includes nonpersonal use property where casualty gains exceed casualty losses for the taxable year.

Section 1231 gain that is treated as long-term capital gain carries from the 2015 Form 4797 to the 2015 Form 1040,Schedule D,line ____.

Depreciable personal property was sold at a gain in 2015.On what 2015 form would this transaction be reported,where initially in that form,and what will the form most likely do with the gain?

An individual business taxpayer owns land on which he grows trees for logging.The land has been held more than 10 years and the trees growing on the land were planted eight years ago.Normally,the timber would be inventory for this taxpayer,but the tax law allows the taxpayer to elect to treat cutting the timber as the disposition of a § 1231 asset.

The maximum amount of the unrecaptured § 1250 gain (25% gain)is the depreciation taken on real property sold at a recognized gain.

The chart below describes the § 1231 assets sold by the Tan Company (a sole proprietorship)this year.Compute the gain or loss from each asset disposition and determine the net § 1231 gain treated as long-term capital gain for the year.Assume there is a § 1231 lookback loss of $14,000. Asset Acquired Sold Cost Depreciation Sale Price Stamping machine 3/10/12 8/10/2016 $40,000 $29,736 $ 2,000 Factory building 2/12/09 7/23/2016 80,000 18,838 90,000 Tractor 5/16/11 11/13/2016 52,000 52,000 60,000 Overhead crane 11/12/05 2/25/2016 74,000 74,000 18,000

Personal use property casualty gains and losses are not subject to the § 1231 rules.

Spencer has an investment in two parcels of vacant land.Parcel 1 is a capital asset and parcel 2 is a § 1231 asset.Spencer already has short-term capital loss for the year he would like to offset with capital gain.Spencer has § 1231 lookback loss that exceeds the gain from the disposition of either land parcel.Spencer only wants to sell one land parcel and each of them would yield the same amount of gain.The gain that would be recognized exceeds the short-term capital loss Spencer already has.Which of the statements below is correct?

If § 1231 asset casualty gains and losses net to a gain,the gain is treated as a § 1231 gain.

Residential real estate was purchased in 2013 for $345,000,held as rental property,and depreciated straight-line.Assume the land cost was $45,000 and the building cost was $300,000.Depreciation totaled $34,089.The building and land were sold on June 10,2016,for $683,000 total.What is the tax status of the property,the nature of the gain from the disposition,and is any of it § 1250 depreciation recapture gain or unrecaptured § 1250 gain?

Lynne owns depreciable residential rental real estate which has accumulated depreciation (all from straight-line)of $65,000.If Lynne sold the property,she would have a $53,000 gain.The initial characterization of the gain would be: