Exam 14: Property Transactions, capital Gains and Losses, sec1231, and Recapture Provisions

Hiram is a computer engineer and,while unemployed,invents a switching device for computer networks.He patents the device,but does not reduce it to practice.Hiram has a zero tax basis for the patent.In consideration of $800,000 plus a $1 royalty per device sold,Hiram assigns the patent to a computer manufacturing company.Hiram assigned all substantial rights in the patent.Which of the following is correct?

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

Recognized gains and losses from disposition of a capital asset may occur as a result of a:

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.

The only things that the grantee of an option may do with the option are exercise it or let it expire.

Vertical,Inc.,has a 2017 net § 1231 gain of $67,000 and had a $22,000 net § 1231 loss in 2016.For 2017,Vertical's net § 1231 gain is treated as:

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

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:

On January 18,2016,Martha purchased 200 shares of Blue Corporation stock for $2,000.On November 11,2017,she sold short 200 shares of Blue Corporation stock which she borrowed from her broker for $2,300.On February 10,2018,Martha closed the short sale by delivering the 200 shares of Blue Corporation stock which she had acquired in 2016.On that date,Blue Corporation stock had a market price of $4 per share.What is Martha's recognized gain or loss and its character in 2017? In 2018?

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

On June 1,2017,Brady purchased an option to buy 1,000 shares of General,Inc.at $40 per share.He purchased the option for $3,000.It was to remain in effect for five months.The market experienced a decline during the latter part of the year,so Brady decided to let the option lapse as of December 1,2017.On his 2017 tax return,what should Brady report?

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

Verway,Inc.,has a 2017 net § 1231 gain of $55,000 and had a $62,000 net § 1231 loss in 2016.For 2017,Verway's net § 1231 gain is treated as:

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?

Section 1231 applies to the sale or exchange of business properties,but not to personal use activity casualties.

A barn held more than one year and used in a business is destroyed in a tornado.The barn originally cost $356,000 and was fully depreciated using straight-line depreciation.The barn was insured for its $543,000 replacement cost minus a deductible of $1,000.Which of the statements below is correct concerning these facts?

Hilda lent $2,000 to a close personal friend to help the friend avoid overdrawing the friend's checking account.The friend was supposed to repay the $2,000 within a month.Instead,the friend declared personal bankruptcy and Hilda will never recover any of the $2,000.What are the tax implications of these events for Hilda?

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

In early 2016,Wanda paid $33,000 for an option on a parcel of land she intended to hold as an investment.After a survey of the land (paid for by the grantor) determined that the parcel was much smaller than the grantor said it was,she let the option lapse when it expired in 2017 after 14 months.How should Wanda treat these events in 2016? 2017?

Sara is filing as head of household and has 2017 taxable income of $57,000 which includes $3,000 of net long-tem capital gain.The net long-term capital gain is made up of $1,000 25% gain and $2,000 0%/15%/20% gain.What is the tax on her taxable income using the alternative tax method? Note: Use the tax rate schedule rather than the tax table.