Question 1

Describe the circumstances in which the potential § 1245 depreciation recapture is extinguished.

Accepted Answer

Section 1245 depreciation recapture potential is extinguished in at least two circumstances: (1)when the property with the depreciation recapture potential is sold at a loss and (2)when the owner of the property with the depreciation recapture potential dies.

Question 2

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 long­term capital gain for the year.Assume there is a § 1231 lookback loss of $14,000.

Accepted Answer

The stamping machine is sold at an $8,264 loss which is a § 1231 loss.The factory building yields a § 1231 gain of $28,838.There is no § 1250 depreciation recapture because straight­line depreciation was used .The tractor has $60,000 of gain,$52,000 of ordinary gain due to § 1245 depreciation recapture (equal to the deprecation taken)and $8,000 of § 1231 gain.The $18,000 gain on the overhead crane is ordinary due to § 1245 depreciation recapture.$14,574 of net § 1231 gain ($28,838 + $8,000 - $8,264 - $14,000 § 1231 lookback loss)is treated as long­term capital gain.The chart below provides details on the computations:
 $\begin{array}{llllllll}&&&&&&\text { Sale } & \text { Gain } \
\text { Asset }&\text { Acquired } &\text { Sold }&\text { Cost }&\text { Depreciation }&\text { Basis }&\text { Price } & \text { (Loss) } \
\text { Stamping }\\text { machine }&3 / 10 / 10 & 8 / 10 / 2014 & \$ 40,000 & \$ 29,736 & \$ 10,264 & \$ 2,000 & (\$ 8,264) \
\text { Factory }\\text { building }&2 / 12 / 07 & 7 / 23 / 2014 & 80,000 & 18,838 & 61,162 & 90,000 & 28,838\
\text { Tractor } & 5 / 16 / 09 & 11 / 13 / 2014 & 52,000 & 52,000 & -0- & 60,000 & 60,000 \
\text { Overhead crane } & 11 / 12 / 03 & 2 / 25 / 2014 & 74,000 & 74,000 & -0- & 18,000 & 18,000
\end{array}$

Question 3

Which of the following creates potential § 1245 depreciation recapture and potential § 1231 gain?

Accepted Answer

A) Depreciable office furniture held more than one year and sold for more than its original cost. 
B) Amortizable goodwill held more than one year and disposed of for less than its adjusted basis. 
C) Land held more than one year and sold for more than was paid for it. 
D) A note receivable held more than one year and sold for less than was paid for it. 
E) None of these. 
A) Depreciable office furniture held more than one year and sold for more than its original cost. 
B) Amortizable goodwill held more than one year and disposed of for less than its adjusted basis. 
C) Land held more than one year and sold for more than was paid for it. 
D) A note receivable held more than one year and sold for less than was paid for it. 
E) None of these. A

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Rental use depreciable machinery held more than 12 months is an example of a § 1231 asset.

Accepted Answer

A) True 
 B)False

Question 6

An individual business taxpayer owns land on which he grows trees for logging.The land has been held more than 10 years and the trees growing on the land were planted eight years ago.Normally,the timber would be inventory for this taxpayer,but the tax law allows the taxpayer to elect to treat cutting the timber as the disposition of a § 1231 asset.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) Sale at a loss of a depreciable business building held more than one year. 
B) Sale at a gain of a business building held more than a year on which straight-line depreciation was taken. 
C) Sale at a loss of a depreciable business building held for 9 months. 
D) Sale at a gain of depreciable equipment held more than a year on which straight-line depreciation was taken. 
E) None of these. 
A) Sale at a loss of a depreciable business building held more than one year. 
B) Sale at a gain of a business building held more than a year on which straight-line depreciation was taken. 
C) Sale at a loss of a depreciable business building held for 9 months. 
D) Sale at a gain of depreciable equipment held more than a year on which straight-line depreciation was taken. 
E) None of these.

Question 8

A retail building used in the business of a sole proprietor is sold on March 10,2014,for $342,000.The building was acquired in 2004 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?

Accepted Answer

A) $400,000 
B) $322,000 
C) $104,000 
D) $26,000 
E) None of these 
A) $400,000 
B) $322,000 
C) $104,000 
D) $26,000 
E) None of these

Question 9

An individual had the following gains and losses during 2014 on property held for the long-term holding period: sale of Orange common stock ($8,000 gain);sale of real property used in the taxpayer's business ($1,800 loss);destruction of real property used in the taxpayer's business by fire ($1,000 loss).Which of the following statements is correct?

Accepted Answer

A) The fire loss would reduce the real property sale loss. 
B) The fire loss would reduce the stock sale gain. 
C) The sale of real property loss would be netted against the stock sale gain. 
D) The sale of real property is a § 1231 loss. 
E) None of these. 
A) The fire loss would reduce the real property sale loss. 
B) The fire loss would reduce the stock sale gain. 
C) The sale of real property loss would be netted against the stock sale gain. 
D) The sale of real property is a § 1231 loss. 
E) None of these.

Question 10

Which of the following is correct?

Accepted Answer

A) Improperly classifying a § 1231 loss as a capital loss might affect adjusted gross income. 
B) Improperly classifying a capital loss as a § 1231 loss might affect adjusted gross income. 
C) Misclassifying a § 1231 gain as a short­term capital gain might affect adjusted gross income. 
D) Misclassifying a short­term capital gain as a § 1231 gain might affect adjusted gross income. 
E) All of these. 
A) Improperly classifying a § 1231 loss as a capital loss might affect adjusted gross income. 
B) Improperly classifying a capital loss as a § 1231 loss might affect adjusted gross income. 
C) Misclassifying a § 1231 gain as a short­term capital gain might affect adjusted gross income. 
D) Misclassifying a short­term capital gain as a § 1231 gain might affect adjusted gross income. 
E) All of these.

Question 11

An individual taxpayer has the gains and losses shown below.There are $3,000 of § 1231 lookback losses.What is the net long-term capital gain?
 $\begin{array}{llr}\text { Holding Period/Property }&\text { Character of Gain or Loss }&\text { Amount }\
5 \text { years/vacant land } & \S 1231 \text { gain } & \$ 7,000 \
2 \text { years/business equipment } & \S 1245 \text { gain } & 3,200 \
3 \text { years/publicly traded stock } & \text { Long-term capital gain } & 890 \
8 \text { months/publicly traded stock } & \text { Short-term capital loss } & (1,870)
\end{array}$

Accepted Answer

The taxpayer has a net long-term capital

Question 12

In the "General Procedure for § 1231 Computation: Step 2.§ 1231 Netting," if the gains exceed the losses,the net gain is offset by the "lookback" nonrecaptured § 1231 losses.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Section 1231 property generally does not include artistic compositions.

Accepted Answer

A) True 
 B)False

Question 15

Section 1245 may apply to amortizable § 197 intangible assets.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Vertical,Inc. ,has a 2014 net § 1231 gain of $67,000 and had a $22,000 net § 1231 loss in 2013.For 2014,Vertical's net § 1231 gain is treated as:

Accepted Answer

A) $45,000 long-term capital gain and $22,000 ordinary loss. 
B) $67,000 ordinary gain. 
C) $45,000 long-term capital gain and $22,000 ordinary gain. 
D) $67,000 capital gain. 
E) None of these. 
A) $45,000 long-term capital gain and $22,000 ordinary loss. 
B) $67,000 ordinary gain. 
C) $45,000 long-term capital gain and $22,000 ordinary gain. 
D) $67,000 capital gain. 
E) None of these.

Question 18

An individual has a $40,000 § 1245 gain,a $35,000 § 1231 gain,a $33,000 § 1231 loss,a $3,000 § 1231 lookback loss,and a $15,000 long-term capital gain.The net long-term capital gain is:

Accepted Answer

A) $30,000. 
B) $40,000. 
C) $17,000. 
D) $15,000. 
E) None of these. 
A) $30,000. 
B) $40,000. 
C) $17,000. 
D) $15,000. 
E) None of these.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Section 1239 (relating to the sale of certain property between related taxpayers)does not apply unless the property:

Accepted Answer

A) Was depreciated by the transferor. 
B) Is depreciable in the hands of the transferee. 
C) Is a capital asset. 
D) Is real property. 
E) None of these. 
A) Was depreciated by the transferor. 
B) Is depreciable in the hands of the transferee. 
C) Is a capital asset. 
D) Is real property. 
E) None of these.

Describe the circumstances in which the potential § 1245 depreciation recapture is extinguished.

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 longterm capital gain for the year.Assume there is a § 1231 lookback loss of $14,000.

Which of the following creates potential § 1245 depreciation recapture and potential § 1231 gain?

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

Rental use depreciable machinery held more than 12 months is an example of a § 1231 asset.

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

Which of the following is correct?

In the "General Procedure for § 1231 Computation: Step 2.§ 1231 Netting," if the gains exceed the losses,the net gain is offset by the "lookback" nonrecaptured § 1231 losses.

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

Section 1231 property generally does not include artistic compositions.

Section 1245 may apply to amortizable § 197 intangible assets.

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

Vertical,Inc. ,has a 2014 net § 1231 gain of $67,000 and had a $22,000 net § 1231 loss in 2013.For 2014,Vertical's net § 1231 gain is treated as:

An individual has a $40,000 § 1245 gain,a $35,000 § 1231 gain,a $33,000 § 1231 loss,a $3,000 § 1231 lookback loss,and a $15,000 long-term capital gain.The net long-term capital gain is:

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

Section 1239 (relating to the sale of certain property between related taxpayers)does not apply unless the property:

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Tax Formula and Tax Determination;an Overview of Property Transactions

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, cost Recovery, amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Alternative Minimum Tax

Tax Credits and Payment Procedures

Property Transactions: Determination of Gain or Loss and Basis Considerations

Property Transactions: Nontaxable Exchanges

Property Transactions: Capital Gains and Losses

Accounting Periods and Methods

Deferred Compensation

Corporations and Partnerships

Filters

Exam 17: Property Transactions: 1231 and Recapture Provisions

Describe the circumstances in which the potential § 1245 depreciation recapture is extinguished.

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 long­term capital gain for the year.Assume there is a § 1231 lookback loss of $14,000.

Which of the following creates potential § 1245 depreciation recapture and potential § 1231 gain?

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

Rental use depreciable machinery held more than 12 months is an example of a § 1231 asset.

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

Which of the following is correct?

In the "General Procedure for § 1231 Computation: Step 2.§ 1231 Netting," if the gains exceed the losses,the net gain is offset by the "lookback" nonrecaptured § 1231 losses.

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

Section 1231 property generally does not include artistic compositions.

Section 1245 may apply to amortizable § 197 intangible assets.

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

Vertical,Inc. ,has a 2014 net § 1231 gain of $67,000 and had a $22,000 net § 1231 loss in 2013.For 2014,Vertical's net § 1231 gain is treated as:

An individual has a $40,000 § 1245 gain,a $35,000 § 1231 gain,a $33,000 § 1231 loss,a $3,000 § 1231 lookback loss,and a $15,000 long-term capital gain.The net long-term capital gain is:

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

Section 1239 (relating to the sale of certain property between related taxpayers)does not apply unless the property:

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Tax Formula and Tax Determination;an Overview of Property Transactions

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, cost Recovery, amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Alternative Minimum Tax

Tax Credits and Payment Procedures

Property Transactions: Determination of Gain or Loss and Basis Considerations

Property Transactions: Nontaxable Exchanges

Property Transactions: Capital Gains and Losses

Accounting Periods and Methods

Deferred Compensation

Corporations and Partnerships

Filters

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 longterm capital gain for the year.Assume there is a § 1231 lookback loss of $14,000.