Question 1

When gain is recognized on an involuntary conversion,gain is subject to recapture under Sec.1245 or Sec.1250.

Accepted Answer

A) True 
 B)False

Question 2

Sec.1245 can increase the amount of gain recognized on an asset.

Accepted Answer

A) True 
 B)False

Question 3

Describe the tax treatment for a noncorporate taxpayer in the 39.6% marginal tax bracket who sells each of the first two assets for $500,000 and each of the second two assets for $750,000.Each asset was purchased in 2010 and is used in a trade or business.There are no other gains and losses and no nonrecaptured Section 1231 losses.

Accepted Answer

• Land: $150,000 Section 1231 gain taxed

Question 4

Section 1250 could convert a portion of Sec.1231 gain into ordinary income if the real property was placed in service prior to 1987 and accelerated depreciation was used.

Accepted Answer

A) True 
 B)False

Question 5

When a donee disposes of appreciated gift property,the recapture amount for the donee is computed by including the recapture amount attributable to the donor.

Accepted Answer

A) True 
 B)False

Question 6

Pete sells equipment for $15,000 to Marcel,his son.The equipment cost $20,000 and has accumulated depreciation of $12,000. Marcel will use the equipment in his business.
a.What is the amount and character of Pete's gain on the sale?
b.How does your answer change if the sales price is $22,000?

Accepted Answer

@#IMG-DLM& The gain is less than the $12,000 depre

Question 7

Indicate whether each of the following assets are capital assets,Sec.1231 assets,or ordinary income property (property which,if sold,results in ordinary income).Assume that all of the property is held for more than one year.
a.XYZ Corporation owns land used as an employee parking lot.How is the parking lot classified for tax purposes?
b.Montana Corporation owns land held as an investment.How is the land classified for tax purposes?
c.John,a self-employed electrician,owns an automobile he uses strictly for personal use.How is the automobile classified for tax purposes?
d.Jan,a self-employed contractor,owns a truck she uses exclusively in her trade or business.How is the truck classified for tax purposes?
e.Leslie owns an office building where her accounting practice is located.What is the classification of the building?
f.Yvonne owns a computer for use in her job as a sales representative.She does not use the computer for personal purposes.How is the computer classified for tax purposes?

Accepted Answer

a.Sec.1231 property b.Capital

Question 8

Gifts of appreciated depreciable property may trigger recapture of depreciation or cost-recovery deductions to the donor.

Accepted Answer

A) True 
 B)False

Question 9

Octet Corporation placed a small storage building in service in 1999.Octet's original cost for the building is $800,000 and the cost recovery deductions are $300,000.This year the building is sold for $1,100,000. The amount and character of the gain are

Accepted Answer

A) Ordinary gain of $60,000 and Sec.1231 gain of $540,000. 
B) Ordinary gain of $300,000 and Sec.1231 gain of $300,000. 
C) Ordinary gain of $600,000. 
D) Sec.1231 gain of $600,000. 
A) Ordinary gain of $60,000 and Sec.1231 gain of $540,000. 
B) Ordinary gain of $300,000 and Sec.1231 gain of $300,000. 
C) Ordinary gain of $600,000. 
D) Sec.1231 gain of $600,000.

Question 10

Connors Corporation sold a warehouse during the current year for $980,000.The building had been acquired in 1980 at a cost of $830,000.The building is fully depreciated.
What is the amount and nature of the gain or loss on the sale of the warehouse?

Accepted Answer

The answer of Connors Corporation sold a warehouse during the...

Question 11

In 2014,Thomas,who has a marginal tax rate of 15%,sells land that is Sec.1231 property at a gain of $4,000.If he has no other 1231 transactions or capital asset transactions and has no nonrecaptured 1231 gain,Thomas will pay no tax on the $4,000 gain.

Accepted Answer

A) True 
 B)False

Question 12

Jacqueline dies while owning a building with a $1,000,000 FMV.The building is classified as Sec.1245 property acquired in 1985 for $850,000.Cost-recovery deductions of $850,000 have been claimed.Pam inherits the property.
a.What is the amount of Pam's basis in the property?
b.What is the amount of cost-recovery deductions that Pam must recover if she immediately sells the building?

Accepted Answer

a.The basis of the property is the FMV o

Question 13

Gains and losses from involuntary conversions of property used in a trade or business generally are classified as capital gains and losses.

Accepted Answer

A) True 
 B)False

Question 14

Jed sells an office building during the current year for $800,000.The building was purchased in 1980 for $350,000. Jed had depreciated the building under an accelerated method,but it is now fully depreciated.Jed has never had any other Sec.1231 transactions.
a.What is the recognized gain or loss on the sale of the building and the character of the gain?
b.How will the gain be taxed?

Accepted Answer

@#IMG-DLM& b.The $300,000 1250 unrecaptu

Question 15

Harry owns equipment ($50,000 basis and $38,000 FMV)and a building ($140,000 basis and $156,000 FMV),which are used in his business.Harry uses straight-line depreciation for both assets,which were acquired several years ago.Both the equipment and the building are destroyed in a fire,and Harry collects insurance proceeds equal to the assets' FMV.The tax result to Harry for this transaction is

Accepted Answer

A) the involuntary conversions are treated as ordinary gains and losses. 
B) the involuntary conversions are treated as Sec.1231 gains and losses. 
C) the loss on involuntary conversion is treated as a Sec.1231 loss while the gain is treated as an ordinary gain. 
D) the loss on involuntary conversion is treated as an ordinary loss while the gain is treated as a Sec.1231 gain. 
A) the involuntary conversions are treated as ordinary gains and losses. 
B) the involuntary conversions are treated as Sec.1231 gains and losses. 
C) the loss on involuntary conversion is treated as a Sec.1231 loss while the gain is treated as an ordinary gain. 
D) the loss on involuntary conversion is treated as an ordinary loss while the gain is treated as a Sec.1231 gain.

Question 16

In order to be considered Sec.1231 property,all of the following livestock must be held for 12 months or more from date of acquisition except

Accepted Answer

A) goats. 
B) hogs. 
C) sheep. 
D) cattle. 
A) goats. 
B) hogs. 
C) sheep. 
D) cattle.

Question 17

For noncorporate taxpayers,depreciation recapture is not required on real property placed in service after 1986.

Accepted Answer

A) True 
 B)False

Question 18

During the current year,Kayla recognizes a $40,000 Section 1231 gain on sale of land and a $22,000 Section 1231 loss on the sale of land.Prior to this,Kayla's only Section 1231 item was a $10,000 loss six years ago.Kayla is in the 28% marginal tax bracket.The amount of tax resulting from these transactions is

Accepted Answer

A) $2,700. 
B) $3,600. 
C) $4,000. 
D) $5,040. 
A) $2,700. 
B) $3,600. 
C) $4,000. 
D) $5,040.

Question 19

Blair,whose tax rate is 28%,sells one tract of land at a gain of $29,000 and another tract of land at a gain of $11,000.Both tracts of land are Sec.1231 property.She has never had any other Sec.1231 transactions.How are the gains taxed?

Accepted Answer

A) ordinary income of $40,000 taxed at 28% 
B) a net capital gain of $40,000 which is not taxed 
C) a net capital gain of $40,000 taxed at 15% 
D) ordinary income of $40,000 taxed at 25% 
A) ordinary income of $40,000 taxed at 28% 
B) a net capital gain of $40,000 which is not taxed 
C) a net capital gain of $40,000 taxed at 15% 
D) ordinary income of $40,000 taxed at 25%

Question 20

During the current year,a corporation sells equipment for $300,000.The equipment cost $270,000 when purchased and placed in service two years ago and $60,000 of depreciation deductions were allowed.The results of the sale are

Accepted Answer

A) ordinary income of $90,000. 
B) Sec.1231 gain of $90,000. 
C) ordinary income of $60,000 and LTCG of $30,000. 
D) ordinary income of $60,000 and Sec.1231 gain of $30,000. 
A) ordinary income of $90,000. 
B) Sec.1231 gain of $90,000. 
C) ordinary income of $60,000 and LTCG of $30,000. 
D) ordinary income of $60,000 and Sec.1231 gain of $30,000.

Exam 26: Property Transactions: Section 1231 and Recapture

When gain is recognized on an involuntary conversion,gain is subject to recapture under Sec.1245 or Sec.1250.

Sec.1245 can increase the amount of gain recognized on an asset.

Section 1250 could convert a portion of Sec.1231 gain into ordinary income if the real property was placed in service prior to 1987 and accelerated depreciation was used.

When a donee disposes of appreciated gift property,the recapture amount for the donee is computed by including the recapture amount attributable to the donor.

Pete sells equipment for $15,000 to Marcel,his son.The equipment cost $20,000 and has accumulated depreciation of $12,000. Marcel will use the equipment in his business. a.What is the amount and character of Pete's gain on the sale? b.How does your answer change if the sales price is $22,000?

Gifts of appreciated depreciable property may trigger recapture of depreciation or cost-recovery deductions to the donor.

Octet Corporation placed a small storage building in service in 1999.Octet's original cost for the building is $800,000 and the cost recovery deductions are $300,000.This year the building is sold for $1,100,000. The amount and character of the gain are

Connors Corporation sold a warehouse during the current year for $980,000.The building had been acquired in 1980 at a cost of $830,000.The building is fully depreciated. What is the amount and nature of the gain or loss on the sale of the warehouse?

In 2014,Thomas,who has a marginal tax rate of 15%,sells land that is Sec.1231 property at a gain of $4,000.If he has no other 1231 transactions or capital asset transactions and has no nonrecaptured 1231 gain,Thomas will pay no tax on the $4,000 gain.

Gains and losses from involuntary conversions of property used in a trade or business generally are classified as capital gains and losses.

In order to be considered Sec.1231 property,all of the following livestock must be held for 12 months or more from date of acquisition except

For noncorporate taxpayers,depreciation recapture is not required on real property placed in service after 1986.

Blair,whose tax rate is 28%,sells one tract of land at a gain of $29,000 and another tract of land at a gain of $11,000.Both tracts of land are Sec.1231 property.She has never had any other Sec.1231 transactions.How are the gains taxed?

During the current year,a corporation sells equipment for $300,000.The equipment cost $270,000 when purchased and placed in service two years ago and $60,000 of depreciation deductions were allowed.The results of the sale are

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

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