Question 1

A building used in a business for more than a year is sold. Sec.1250 will not cause depreciation recapture if

Accepted Answer

A) the building is fully depreciated. 
B) the building was placed in service after 1986. 
C) straight-line depreciation was used. 
D) all of the above. 
A) the building is fully depreciated. 
B) the building was placed in service after 1986. 
C) straight-line depreciation was used. 
D) all of the above. D

Question 2

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  True

Question 3

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  False

Question 4

Cobra Inc.sold stock for a $25,000 loss five years ago.It has been carrying over the capital loss for five years,and the loss will expire at the end of this year because Cobra has not had any capital gains.Earlier this year Cobra sold a parcel of land held four years for business use and will recognize a $30,000 gain.Cobra is thinking about selling some machinery used in its business for the past three years.During this time technology has dramatically changed so Cobra will recognize a $32,000 loss on the sale of the machinery.Cobra is trying to decide whether to sell the machinery at year-end or early next year.Cobra is profitable and has a consistent marginal tax rate of 35%.When should Cobra sell the equipment?

Accepted Answer

A) current year 
B) early next year 
C) current year,but arrange an installment sale to spread the loss recognition over the two years 
D) either the current year or next year 
A) current year 
B) early next year 
C) current year,but arrange an installment sale to spread the loss recognition over the two years 
D) either the current year or next year

Question 5

Terry has sold equipment used in her business. She acquired the equipment three years ago for $50,000 and has recognized $30,000 of depreciation across the years in use. In order to recognize any Sec.1231 gain,she must sell the equipment for more than

Accepted Answer

A) $0. 
B) $20,000. 
C) $30,000. 
D) $50,000. 
A) $0. 
B) $20,000. 
C) $30,000. 
D) $50,000.

Question 6

Jeremy has $18,000 of Section 1231 gains and $23,000 of Section 1231 losses.The gains and losses are characterized as

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 7

Installment sales of depreciable property which result in recaptured income under Secs.1245 or 1250 require that the recaptured income be recognized in the year of sale.

Accepted Answer

A) True 
 B)False

Question 8

In 1980,Artima Corporation purchased an office building for $400,000 for use in its business.The building is sold during the current year for $550,000.Total depreciation allowed for the building was $350,000; straight-line would have been $320,000.As result of the sale,how much section 1231 gain will Artima Corporation report?

Accepted Answer

A) $350,000 
B) $406,000 
C) $320,000 
D) $500,000 
A) $350,000 
B) $406,000 
C) $320,000 
D) $500,000

Question 9

Eric purchased a building in 2003 that he uses in his business.Eric uses the straight-line method for the building.Eric's original cost for the building is $420,000 and cost-recovery deductions are $120,000.Eric is in the top tax bracket and has never sold any other business assets. If the building is sold for $560,000,the tax results are

Accepted Answer

A) $260,000 Sec.1231 gain,all taxable at 20%. 
B) $260,000 unrecaptured Sec.1250 gain,all taxable at 25%. 
C) $260,000 Sec.1231 gain,of which $120,000 is unrecaptured Sec.1250 gain taxable at 25% and the $140,000 balance is taxable at 20%. 
D) $120,000 Sec.1245 ordinary income,$140,000 Sec.1231 gain taxable at 20%. 
A) $260,000 Sec.1231 gain,all taxable at 20%. 
B) $260,000 unrecaptured Sec.1250 gain,all taxable at 25%. 
C) $260,000 Sec.1231 gain,of which $120,000 is unrecaptured Sec.1250 gain taxable at 25% and the $140,000 balance is taxable at 20%. 
D) $120,000 Sec.1245 ordinary income,$140,000 Sec.1231 gain taxable at 20%.

Question 10

For livestock to be considered Section 1231 property,

Accepted Answer

A) the livestock must be held for draft,breeding or dairy purposes,but not for sport. 
B) cattle and horses must be held for at least 12 months from the date of acquisition. 
C) cattle and horses must be held for at least 24 months from the date of acquisition. 
D) livestock other than cattle and horses must be held for at least 24 months from the date of acquisition. 
A) the livestock must be held for draft,breeding or dairy purposes,but not for sport. 
B) cattle and horses must be held for at least 12 months from the date of acquisition. 
C) cattle and horses must be held for at least 24 months from the date of acquisition. 
D) livestock other than cattle and horses must be held for at least 24 months from the date of acquisition.

Question 11

Douglas bought office furniture two years and four months ago for $25,000 to use in his business and elected to expense all of it under Sec.179.Depreciation of $3,500 would have been taken under the MACRS rules.If Douglas converts the furniture to nonbusiness use today,Douglas must

Accepted Answer

A) amend the prior two years tax returns. 
B) include $3,500 in gross income in year of conversion. 
C) include $21,500 in gross income in year of conversion. 
D) include $25,000 in gross income in year of conversion. 
A) amend the prior two years tax returns. 
B) include $3,500 in gross income in year of conversion. 
C) include $21,500 in gross income in year of conversion. 
D) include $25,000 in gross income in year of conversion.

Question 12

If Section 1231 applies to the sale or exchange of an unharvested crop sold with land,the costs of producing the crop are

Accepted Answer

A) capitalized. 
B) deducted as an expense of operations when incurred and also deducted from the sales price at the time of the sale. 
C) deducted when incurred if the land is sold but capitalized if the land is exchanged. 
D) deducted as an expense of operations when incurred. 
A) capitalized. 
B) deducted as an expense of operations when incurred and also deducted from the sales price at the time of the sale. 
C) deducted when incurred if the land is sold but capitalized if the land is exchanged. 
D) deducted as an expense of operations when incurred.

Question 13

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 14

The following gains and losses pertain to Jimmy's business assets that qualify as Sec.1231 property.Jimmy does not have any nonrecaptured net Sec.1231 losses from previous years,and the portion of gain recaptured as ordinary income due to the depreciation recapture provisions has been eliminated.
   Describe the specific tax treatment of each of these transactions.

Accepted Answer

The $24,000 casualty gain is treated as

Question 15

Emma owns a small building ($120,000 basis and $123,000 FMV)and equipment ($35,000 basis and $22,000 FMV).Both assets were acquired three years ago,are used in Emma's business,and are depreciated using straight-line depreciation.Both are destroyed by fire.Insurance proceeds were equal to their FMVs.Only one other transfer of an asset occurs during the year,and a $3,000 LTCL is recognized.After considering all transactions,the tax result to Emma is a

Accepted Answer

A) $13,000 NLTCL. 
B) $13,000 ordinary loss. 
C) $3,000 LTCG; $3,000 LTCL; and $13,000 ordinary loss. 
D) $10,000 net ordinary loss and a $3,000 NLTCL. 
A) $13,000 NLTCL. 
B) $13,000 ordinary loss. 
C) $3,000 LTCG; $3,000 LTCL; and $13,000 ordinary loss. 
D) $10,000 net ordinary loss and a $3,000 NLTCL.

Question 16

If realized gain from disposition of business equipment exceeds total depreciation or cost recovery,a portion of the gain will receive Sec.1231 treatment if the equipment's holding period is more than one year.

Accepted Answer

A) True 
 B)False

Question 17

All of the following statements are true regarding Sec.1245 are true except

Accepted Answer

A) Sec.1245 does not apply to any buildings placed in service after 1986. 
B) Sec.1245 applies to assets sold or exchanged at a gain or at a loss. 
C) Sec.1245 property includes nonresidential real estate that qualified as recovery property under the ACRS rules unless the taxpayer elected to use the straight-line method of cost recovery. 
D) Sec.1245 ordinary applies to total depreciation or amortization allowed or allowable but not more than the realized gain. 
A) Sec.1245 does not apply to any buildings placed in service after 1986. 
B) Sec.1245 applies to assets sold or exchanged at a gain or at a loss. 
C) Sec.1245 property includes nonresidential real estate that qualified as recovery property under the ACRS rules unless the taxpayer elected to use the straight-line method of cost recovery. 
D) Sec.1245 ordinary applies to total depreciation or amortization allowed or allowable but not more than the realized gain.

Question 18

With regard to noncorporate taxpayers,all of the following statements are true regarding Sec.1250 recapture except

Accepted Answer

A) Sec.1250 affects the character of the gain,not the amount of the gain. 
B) Sec.1250 applies to assets sold or exchanged at either a gain or a loss. 
C) Sec.1250 ordinary income does not exist if the straight-line method of depreciation is used. 
D) Sec.1250 ordinary income is never more than the additional depreciation allowed. 
A) Sec.1250 affects the character of the gain,not the amount of the gain. 
B) Sec.1250 applies to assets sold or exchanged at either a gain or a loss. 
C) Sec.1250 ordinary income does not exist if the straight-line method of depreciation is used. 
D) Sec.1250 ordinary income is never more than the additional depreciation allowed.

Question 19

The sale of inventory results in ordinary gain or loss.

Accepted Answer

A) True 
 B)False

Question 20

Melissa acquired oil and gas properties for $600,000.During 2013 she elected to expense the $180,000 of IDC.Total depletion allowed was $50,000.During the current year,Melissa sells the property for $700,000.
a.What is the amount of and nature of her gain using the facts above?
b.What is the amount of and nature of her gain assuming that she sold the property for $850,000?

Accepted Answer

a.Melissa has realized gain of $150,000

Exam 26: Property Transactions: Section 1231 and Recapture

A building used in a business for more than a year is sold. Sec.1250 will not cause depreciation recapture if

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.

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.

Terry has sold equipment used in her business. She acquired the equipment three years ago for $50,000 and has recognized $30,000 of depreciation across the years in use. In order to recognize any Sec.1231 gain,she must sell the equipment for more than

Jeremy has $18,000 of Section 1231 gains and $23,000 of Section 1231 losses.The gains and losses are characterized as

Installment sales of depreciable property which result in recaptured income under Secs.1245 or 1250 require that the recaptured income be recognized in the year of sale.

For livestock to be considered Section 1231 property,

Douglas bought office furniture two years and four months ago for $25,000 to use in his business and elected to expense all of it under Sec.179.Depreciation of $3,500 would have been taken under the MACRS rules.If Douglas converts the furniture to nonbusiness use today,Douglas must

If Section 1231 applies to the sale or exchange of an unharvested crop sold with land,the costs of producing the crop are

For a business,Sec.1231 property does not include

If realized gain from disposition of business equipment exceeds total depreciation or cost recovery,a portion of the gain will receive Sec.1231 treatment if the equipment's holding period is more than one year.

All of the following statements are true regarding Sec.1245 are true except

With regard to noncorporate taxpayers,all of the following statements are true regarding Sec.1250 recapture except

The sale of inventory results in ordinary gain or loss.

Tax Research

an Introduction to Taxation

Corporate Formations and Capital Structure

I: Determination of Tax

The Corporate Income Tax

Gross Income: Inclusions

Corporate Nonliquidating Distributions

Gross Income: Exclusions

Other Corporate Tax Levies

Property Transactions: Capital Gains and Losses

Corporate Liquidating Distributions

Deductions and Losses

Corporate Acquisitions and Reorganizations

Itemized Deductions

Consolidated Tax Returns

Losses and Bad Debts

Partnership Formation and Operation

Employee Expenses and Deferred Compensation

Special Partnership Issues

Depreciation cost Recovery amortization and Depletion

S Corporations

Accounting Periods and Methods

The Gift Tax

Property Transactions: Nontaxable Exchanges

The Estate Tax

Income Taxation of Trusts and Estates

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

Administrative Procedures

Filters