Exam 17: Property Transactions: 1231 and Recapture Provisions

A business taxpayer sold all the depreciable assets of the business,calculated the gains and losses,and would like to know the final character of those gains and losses.The taxpayer had $353,000 of adjusted gross income before considering the gains and losses from sale of the business assets.The taxpayer had unrecaptured § 1231 lookback loss of $22,000.What is the treatment of the gains and losses summarized in the chart below after all possible netting and reclassification has been completed? What is the taxpayer's adjusted gross income? (Ignore the self­employment tax deduction. ) Asset Purchase Date Sale Date Deprecintion Cain (Loss) Machine \#1 10/10/12 11/1/14 \ 323,000 \ 66,000 Machine \#2 10/02/11 11/1/14 65,000 (15,000) Machine \#3 09/23/10 11/1/14 183,000 23,000 Machine \#4 09/23/10 11/11/4 28,000 34,000

Section 1231 property generally includes certain purchased intangible assets (such as patents and goodwill)that are eligible for amortization and held for more than one year.

Residential real estate was purchased in 2011 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 10,2014,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?

Why is it generally better to have a net § 1231 gain year followed by a net § 1231 loss year rather than a net § 1231 loss year followed by a net § 1231 gain year?

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: a()He does reinvest the insurance proceeds? b()If he doesn't reinvest the insurance proceeds?

In 2014 Angela,a single taxpayer with no dependents,disposed of for $44,000 a business building which cost $100,000.$60,000 of depreciation had been taken on the building.Angela has a short-term capital loss of $3,000 this year.She has taxable income (not related to property transactions)of $125,000.She has no § 1231 lookback loss.What is the amount and nature of the gain or loss,what is Angela's taxable income,and what is her tax on the taxable income?

White Company acquires a new machine for $75,000 and uses it in White's manufacturing operations.A few months after White places the machine in service,it discovers that the machine is not suitable for White's business.White had fully expensed the machine in the year of acquisition using § 179.White sells the machine for $60,000 in the tax year after it was acquired,but held the machine only for a total of 10 months.What was the tax status of the machine when it was disposed of and the amount of the gain or loss?

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

44. Red Company had an involuntary conversion on December 23, 2014. The machinery had been acquired on April 1, 2012, for $49,000 and its adjusted basis was $14,200. The machinery was completely destroyed by fire and Red received $10,000 of insurance proceeds for the machine and did not replace it. This was Red’s only casualty or theft event for the year. As a result of this event, Red initially has:

Nonrecaptured § 1231 losses from the six prior tax years may cause current year net § 1231 gain to be treated as ordinary income.

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?

Orange Company had machinery destroyed by a fire on December 23,2014.The machinery had been acquired on April 1,2012,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:

Involuntary conversion gains may be deferred if the proceeds of the involuntary conversion are reinvested.

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.

Blue Company sold machinery for $45,000 on December 23,2014.The machinery had been acquired on April 1,2012,for $69,000 and its adjusted basis was $34,200.The § 1231 gain,§ 1245 recapture gain,and § 1231 loss from this transaction are:

Depreciable personal property was sold at a gain in 2013.On what 2013 form would this transaction be reported,where initially in that form,and what will the form most likely do with the gain?

A business taxpayer sold all the depreciable assets of the business,calculated the gains and losses,and would like to know the final character of those gains and losses.The taxpayer had $353,000 of adjusted gross income before considering the gains and losses from sale of the business assets.The taxpayer had unrecaptured § 1231 lookback loss of $12,000.What is the treatment of the gains and losses summarized in the chart below after all possible netting and reclassification has been completed? What is the taxpayer's adjusted gross income? (Ignore the self­employment tax deduction. ) Asset Purchase Date Sale Date Deprecintion Cain (Loss) Machine \#1 10/10/12 11/1/14 \ 323,000 \ 66,000 Machine \#2 10/02/12 11/1/14 65,000 (15,000) Machine \#3 09/23/10 11/1/14 183,000 23,000 Machine \#4 09/23/10 11/11/4 28,000 64,000

Which of the following statements is correct?

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

A personal use property casualty loss is generally deductible only to the extent it exceeds 10% of AGI.