Exam 14: Property Transactions: Capital Gains and Losses, 1231, Recapture Provisions

A business machine purchased April 10, 2010, for $202,000 was fully depreciated in 2010 using § 179 immediate expensing. On August 15, 2012, the machine was sold for $67,000. What is the amount and nature of the gain or loss from disposition of the machine?

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

Ranja acquires $200,000 face value corporate bonds for $186,000 when the bonds are issued.He holds the bonds as an investment for two years and then sells them for $198,000.He amortizes $2,000 of the OID.What tax issues does Ranja have with respect to these bonds?

If a capital asset is sold at a loss, the holding period is important.

As a general rule, the sale or exchange of an option to buy or sell property results in capital gain or loss if the property subject to the option is (or would be) a capital asset in the hands of the option holder.

A security that is a capital asset becomes worthless.The loss is deemed to have occurred on the day that the security was declared worthless.

Assume a building is subject to § 1250 depreciation recapture because it was acquired before 1987 and accelerated depreciation was used to depreciate it. The building is destroyed in a fire and this is the taxpayer's only casualty or theft for the year. In which of the following situations could there be a § 1250 depreciation recapture gain?

Which of the following events could result in § 1250 depreciation recapture?

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

Lease cancellation payments received by a lessor are always ordinary income because they are considered to be in lieu of rental payments.

Original issue discount is amortized over the life of the bond.

On January 10, 2012, Wally sold an option for $2,000 on vacant land he held as an investment.He had purchased the land in 2008 for $76,000.The option allowed the option holder to purchase the property for $122,000 plus the cost of the option.On March 1, 2012, the option holder exercised the option.What is the amount and nature of Wally's gain or loss from disposition of the land?

Vertigo, Inc., has a 2012 net § 1231 loss of $64,000 and had a $32,000 net § 1231 gain in 2011.For 2012, Vertigo's net § 1231 loss is treated as:

Harry inherited a residence from his mother when she died.The mother had a tax basis of $566,000 for the residence when she died and the residence was worth $433,000 at the date of her death.Which of the statements below is correct?

Vertical, Inc., has a 2012 net § 1231 gain of $67,000 and had a $22,000 net § 1231 loss in 2011.For 2012, Vertical's net § 1231 gain is treated as:

Copper Corporation sold machinery for $27,000 on December 31, 2012.The machinery had been purchased on January 2, 2009, for $30,000 and had an adjusted basis of $21,000 at the date of the sale.For 2012, what should Copper Corporation report?

Which of the following is correct?

Depreciation recapture under § 1245 and § 1250 is reported on Form 4797.

Laura purchased for $1,610 a $2,000 bond when it was issued two years ago.Laura amortized $200 of the original issue discount and then sold the bond for $1,800.Which of the following statements is correct?

A franchisor licenses its mode of business operation to a franchisee.