Exam 26: Property Transactions: Section 1231 and Recapture

A corporation owns many acres of timber,which it acquired three years ago,and which has a $120,000 basis.The timber was cut last year for use in the corporation's business.The FMV of the timber on the first day of last year was $270,000.The corporation made the appropriate election to treat the cutting as a sale or exchange.The timber is sold for $300,000 this year.The tax result this year is

Network Corporation purchased $200,000 of five-year equipment on March 24,2012.They elected to expense $60,000 of the cost under Sec.179 in effect that year.After depreciating the equipment $28,000 in 2012 and $22,400 in 2013,the equipment was sold for $190,000. a.What is the amount of the realized gain (or loss)on the sale? b.How is the gain or loss taxed?

The additional recapture under Sec.291 is 25% of the difference between the amount that would have been recaptured if the property was Sec.1245 property and the actual recapture under Sec.1250.

With respect to residential rental property

Sec.1245 ordinary income recapture can apply to buildings placed in service prior to 1987.

Hilton,a single taxpayer in the 28% marginal tax bracket,has $16,000 of nonrecaptured net Sec.1231 losses,at the beginning of a year in which he had the following transactions: -Sale of Asset A at a $10,000 1231 gain,all of which is unrecaptured Sec.1250 gain -Sale of Asset B at a $13,000 1231 gain How are the items reported this year and at which rate(s)are the amounts taxed?

Frisco Inc.,a C corporation,placed a building in service in 2002 and deducted straight-line depreciation under the MACRS system in the normal manner. It sold the building this year for a substantial gain. Because straight-line depreciation was used,Frisco will not need to recognize any ordinary gain.

The following are gains and losses recognized in 2014 on Ann's business assets that were held for more than one year.The assets qualify as Sec.1231 property. A summary of Ann's net Sec.1231 gains and losses for the previous five-year period is as follows: Describe the specific tax treatment of each of the current year transactions.

Section 1250 does not apply to assets sold or exchanged at a loss.

Any gain or loss resulting from the sale or disposition of depreciable property used in trade or business and held one year or less is considered ordinary.

Brian purchased some equipment in 2014 which he intends to use in his trade or business.He approaches you to assist him in planning for the ultimate disposal of the asset-whether it be by sale,charitable contribution to the local university,gift to his sister for use in her business,or some other means.Discuss the tax considerations.

Jesse installed solar panels in front of his office building in 2013. The panels are not attached to the building. After using the solar panels for 13 months,Jesse decided to replace them with a newer model to obtain a greater savings on electricity costs. Jesse sold the old solar panels for an amount greater than his original purchase price. What tax issues should be considered with purchase,use and sale of the original solar panels?

Emily,whose tax rate is 28%,owns an office building which she purchased for $900,000 on March 18 of last year.The building is sold for $950,000 on February 20 of this year when the adjusted basis of the building was $876,000.The tax results to Emily are

Maura makes a gift of a van to a local food bank run by a charity.Maura had used the van in her trade or business.The van has a FMV of $6,500; a cost of $31,000; and $27,000 depreciation claimed.What is the amount of Maura's charitable contribution deduction?

Sarah owned land with a FMV of $150,000 (adjusted basis $135,000)which is investment property (a capital asset).Sarah owned a second tract of land,a 1231 asset,with a FMV of $38,000 (adjusted basis $55,000).Both tracts were acquired in 2000 and condemned by the state this year.The state paid an amount equal to FMV.If there are no other transactions involving capital assets or 1231 assets,what is the amount that Sarah must report on her current year return?

Elaine owns equipment ($23,000 basis and $15,000 FMV)and a building ($136,000 basis and $148,000 FMV),which are used in her business.Elaine 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 Elaine collects insurance proceeds equal to the assets' FMV. a.What is the tax treatment of these two transactions? b.Assume that Elaine is only able to collect $3,000 from the insurance company for the equipment loss. What is the tax treatment of the two transactions (assume the basis and insurance reimbursement remain the same for the building).

Pam owns a building used in her trade or business that was placed into service in 2002.The building cost $450,000 and depreciation to date amounts to $200,000.Pam sells the building for $380,000.It is the only asset she sells this year,and she has no nonrecaptured Sec.1231 losses.What is the amount of recognized gain and the nature of the gain? How will the gain be taxed?

Why did Congress establish favorable treatment for 1231 assets?

Julie sells her manufacturing plant and land originally purchased in 1980.Accelerated depreciation had been taken on the building,but the building is now fully depreciated.Julie is in the 39.6% marginal tax bracket.Other information is as follows: She has not sold any other assets this year. A review of her file indicates that the only asset dispositions in the past five years was a truck sold for a $10,000 loss last year. What are the tax consequences of the sale (type of gain; rates at which taxed)?

During the current year,George recognizes a $30,000 Section 1231 gain on sale of land and a $18,000 Section 1231 loss on the sale of land.Prior to this,George's only Section 1231 item was a $14,000 loss six years ago.George must report a