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

Willie is the owner of vacant land that he purchased in 2008 for $1,400,000 and held for investment.On January 22, 2011, he was paid $145,000 for a thirteen-month option on the land by Susan.Susan could buy the land for an additional $1,200,000 by exercising the option.Susan had hoped to build a luxury home on the land, but was unable to get approval to build a big enough home to satisfy her needs.Consequently, Susan did not exercise her option and the option expired on February 22, 2012.(1) What is Willie's basis, gain or loss, and type of gain or loss from these events? (2) What is Susan's basis, gain or loss, and type of gain or loss from these events?

A retail building used in the business of a sole proprietor is sold on March 10, 2012, for $342,000. The building was acquired in 2002 for $400,000 and straight-line depreciation of $104,000 had been taken on the building. What is the maximum unrecaptured § 1250 gain from the disposition of this building?

Short-term capital gain is eligible for a special tax rate only when it exceeds long-term capital gain.

Personal use property casualty gains and losses are not subject to the § 1231 rules.

Samuel, head of household with two dependents, has 2012 wages of $26,000, paid alimony of $3,000, has taxable interest income of $2,000, and a $12,000 0%/15% net long-term capital gain. Samuel uses the standard deduction and is age 38. What is his 2012 taxable income and the tax on the taxable income?

Larry was the holder of a patent on a video game.During 2012, he sold all substantial rights in the patent for $345,000 in cash and a 3% royalty on the purchaser's first $10,200,000 of sales each year related to the product in which the patent is incorporated.Larry had not reduced the patent to practice.He had a $56,000 basis for the patent.During 2012, he received $10,000 in royalties.What is the nature and amount of Larry's gain?

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

Recognized gains and losses must be properly classified. Proper classification depends upon:

Lynne owns depreciable residential rental real estate which has accumulated depreciation (all from straight-line) of $65,000.If Lynne sold the property, she would have a $53,000 gain.The initial characterization of the gain would be:

The Code contains two major depreciation recapture provisions-§§ 1245 and 1250.

Residential real estate was purchased in 2009 for $345,000, held as rental property, and depreciated straight-line. Assume the land cost was $45,000 and the building cost was $300,000. Depreciation totaled $34,089. The building and land were sold on June 10, 2012, for $683,000 total. What is the tax status of the property, the nature of the gain from the disposition, and is any of it § 1250 depreciation recapture gain or unrecaptured § 1250 gain?

Vanna owned an office building that had been held more than one year when it was sold for $567,000.The real estate had an adjusted basis of $45,000 for the land and $233,000 for the building.Straight-line depreciation of $162,000 had been taken on the building.What is the amount and initial character of the gain or loss from disposition of the real estate? Is any of the gain unrecaptured § 1250 (25%) gain?

All collectibles long-term gain is subject to a potential alternative tax rate of 28%.

Virgil was leasing an apartment from Marple, Inc.Marple paid Virgil $1,000 to cancel his lease and move out so that Marple could demolish the building.As a result:

Judith (now 37 years old) owns a collection of porcelain dolls that she acquired when she was a grade schooler.She had forgotten about them until her mother sent them to her. Her mother had discovered them in a box in her attic while she was cleaning out her house before selling it. Judith had originally acquired all the dolls as gifts from her parents, so she has no way to establish a basis for the dolls. Using information from the Internet, she prepares a careful inventory of the dolls that includes their name, when they were first available for sale, their current value, and other pertinent information. She then lists them for sale on the Internet. To her surprise, she quickly gets an offer of $5,000 for all of them and sells them. Judith has no other gain or loss transactions for the year and is in the 28% marginal tax bracket. What issues do these facts create?

The tax law requires that capital gains and losses be separated from other types of gains and losses.Among the reasons for this treatment are:

If § 1231 asset casualty gains and losses net to a gain, the gain is treated as a § 1231 gain.

Harold is a head of household, has $27,000 of taxable income in 2012 from non-capital gain or loss sources, and has the following capital gains and losses: What is Harold's taxable income and the tax on that taxable income?

Jamison owned a rental building (but not the land) that was destroyed by a hurricane.The building was insured and Jamison has a $56,000 gain because his insurance recovery exceeded his adjusted basis for the building.Jamison does not intend to replace the building.Jamison had taken $45,000 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?

Martha has both long-term and short-term 2011 capital gains and losses. The result of netting these gains and losses is a net long-term capital loss. Martha has no qualified dividend income. Also, Martha's 2011 taxable income puts her in the 28% tax bracket. Which of the following is correct?