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

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?

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

Section 1231 lookback losses may convert some or all of § 1245 gain into ordinary income.

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

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?

For tax purposes, there is no original issue discount on a bond unless the bond is issued for less than its face value and the difference between the face value and the bond issue price is at least one-fourth of 1 percent of the redemption price at maturity multiplied by the number of years to maturity.

Section 1231 property generally does not include artistic compositions.

May an individual that has purchased a patent be a holder of that patent?

There can be three subgroups within the long-term capital gain or loss group - 0%/15%/20%, 25%, and 28%.

Seamus had $16,000 of net short-term capital loss in 2017. In 2018, Seamus has $17,000 of long-term capital loss and $26,000 of long-term capital gain. Which of the following statements is correct?

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.

A business machine purchased April 10, 2017, for $62,000 was fully depreciated in 2017 using § 179 immediate expensing. On August 15, 2018, the sole proprietor who owned the machine gave it to his son. On that date, the machine's fair market value was $57,000. The son did not use the machine in business or hold it as inventory and the machine was sold on November 22, 2018, for $53,000.What is the amount and nature of the gain or loss from disposition of the machine? Where is it reported in the son's tax return?

The tax law requires that capital gains and losses be separated from other types of gains and losses because an alternative tax calculation may be used when taxable income includes net long-term capital gain.

The holding period of property given up in a like-kind exchange includes the holding period of the asset received if the property that has been exchanged is a capital asset.

If the holder of an option fails to exercise the option, the lapse of the option is considered a sale or exchange on the option expiration date.

Charmine, a single taxpayer with no dependents, has already incurred a $10,000 § 1231 gain in 2018 and has no §1231 lookback losses. The taxpayer purchased a business machine for $100,000 five years ago, $70,000 of depreciation has been taken on it, and the machine is now worth $90,000. How will the net § 1231 gain or loss be affected if the taxpayer trades in the business machine for a like-kind business machine and pays an additional $12,000 in cash to obtain the replacement machine? If Charmine already has $352,000 of taxable income which does not include a $10,000 § 1231 gain or any capital gains or losses, what is her taxable income?

The maximum § 1245 depreciation recapture generally equals the accumulated depreciation.

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

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:

Sharon has the following results of netting her short-term and long-term capital gains and losses for 2018: $56,000 short-term capital loss, and $82,000 net long-term capital gain ($21,000 0%/15%/20% long-term capital gain, and $61,000 25% long-term capital gain). (a) What is her net capital gain or loss for 2018? (b) If there is a net capital loss, how much of the loss and what type of loss carries over to 2019? (c) If there is a net long-term capital gain, what is it made up of?