Exam 17: Property Transactions: 1231 and Recapture Provisions

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.

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

Orange Company had machinery destroyed by a fire on December 23, 2017. The machinery had been acquired on April 1, 2015, for $49,000 and its adjusted basis was $14,200. The machinery was completely destroyed and Orange received $30,000 of insurance proceeds for the machine and did not replace it. This was Orange's only casualty or theft event for the year. As a result of this event, Orange has:

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?

A sheep must be held more than 18 months to qualify as a § 1231 asset.

Section 1245 depreciation recapture potential does not carryover from a deceased taxpayer to the beneficiary taxpayer.

Which of the following statements is correct?

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

Which of the following assets held by a cash basis accounting firm is a § 1231 asset?

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

A business machine purchased April 10, 2016, for $62,000 was fully depreciated in 2016 using § 179 immediate expensing. On August 15, 2017, 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, 2017, 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?

A business machine purchased April 10, 2015, for $98,000 was fully depreciated in 2015 using § 179 immediate expensing. On August 15, 2017, the machine was sold for $67,000. What is the amount and nature of the gain or loss from disposition of the machine?

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.

Which of the following real property could be subject to § 1250 depreciation recapture?

Section 1231 property generally does not include artistic compositions.

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

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

For § 1245 recapture to apply, accelerated depreciation must have been taken on the property.

Williams owned an office building (but not the land) that was destroyed by a fire. The building was insured and Williams has a $156,000 gain because his insurance recovery exceeded his adjusted basis for the building. Williams may replace the building. Williams had taken $145,000 of depreciation on the building, has no § 1231 lookback loss, has no other § 1231 transactions for the year, and has no Schedule D transactions for the year. What is the final nature of Jamison's gain for the year and what tax rate(s) apply to the gain if:

Part III of Form 4797 is used to report gains from the sale of depreciable business equipment sold at a gain and held more than one year.