Exam 17: Property Transactions: Section 1231 and Recapture Provisions

Section 1231 property generally does not include musical compositions.

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 self-employment tax deduction.)

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

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?

Depreciable personal property was sold at a gain in 2011.On what 2011 form would this transaction be reported,where initially in that form,and what will the form most likely do with the gain?

White Company acquires a new machine for $35,000 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 $5,000 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?

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?

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

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.

In 2012 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?

Section 1231 lookback losses may convert some or all of § 1250 gain into ordinary income.

Business equipment is purchased on March 10,2011,used in the business until September 29,2011,and sold at a $23,000 loss on October 10,2011.The equipment was not suitable for the work the business had purchased it for.The loss on the disposition should have been reported in the 2011 Form 4797,Part:

An individual had the following gains and losses during 2012 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?

A business taxpayer trades in a used fully depreciated machine on a replacement machine.Because the machine traded in was worth more than the replacement machine,the taxpayer received cash in the transaction.Assume the used machine originally cost $100,000,was worth $32,000 when it was traded in,and the replacement machine was worth $20,000.Consequently,the taxpayer received $12,000 cash in the transaction.Is there recognized gain in this transaction and,if so,what type of gain?

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

Which of the following would not be included in the netting of § 1231 gains and losses?

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:

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

Section 1245 generally recaptures as ordinary income the portion of the gain that is equal to the sale price minus the original cost.

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