Deck 8: Property Dispositions

Question 1

A taxpayer's initial investment in Section 1202 stock is limited to $1 million.

Answer 1

False

Question 2

A mixed-use asset is an asset that is used for both personal purposes and business activities.

Answer 2

True

Question 3

The tax effect of a sale of an asset at a gain increases the cash flow from the sale.

Answer 3

False

Question 4

The Section 1231 look-back rules change the character of capital losses incurred in the
previous 5 years.

Question 5

A gain must be recognized unless some tax provision allows nonrecognition or deferral.

Question 6

Gain representing depreciation recapture on equipment is taxed at ordinary income rates.

Question 7

An individual's net Section 1231 gain is given the tax-favored treatment of a long-term capital asset.

Question 8

In 2018, capital gains of individuals can be taxed at 0%, 10%, 15%, 20%, 25%, or 28%, excluding surtaxes.

Question 9

To determine the tax, a taxpayer with a $5,000 gain on the sale of a collectible and a $10,000 gain on the sale of stock, adds the gain on the stock to income after the gain on the collectible.

Question 10

A taxpayer who disposed of his or her home in 2017 in a short sale had to recognize up to $1 million in cancellation of indebtedness income.

Question 11

The holding period for an asset acquired by inheritance is determined by including the period
the asset was held by the decedent.

Question 12

Section 291 recapture only applies to a corporation.

Question 13

All losses on Section 1244 stock are deductible in the year realized.

Question 14

The holding period for a long-term capital asset must exceed one year for tax-favored treatment.

Question 15

Corporate net capital gains receive no tax-favored treatment.

Question 16

A personal residence owned by an individual is a capital asset.

Question 17

All assets owned by a trade or business are Section 1231 assets.

Question 18

Individuals can only deduct capital losses to the extent of capital gains plus $3,000.

Question 19

Section 1245 recapture is primarily applicable to realty.

Question 20

The most common ordinary income assets are receivables and inventory.

Question 21

Taxpayer B has the following gains and losses from property transactions. What is the effect on the taxpayer's taxable income if Taxpayer B is (a) a corporation; (b) an individual?
Long-term capital gain $4,000
Long-term capital loss 7,000
Section 1231 gain 10,000
Section 1231 loss 6,000
Short-term capital gain 3,000
Short-term capital loss 6,000

Question 22

Why is the character of a gain or loss on a disposition important? What are the three types of recognized gains or losses that determine their taxation?

Question 23

What are three types of dispositions other than a sale? Briefly explain each.

Question 24

Abbey has the following gains and losses from property transactions. What is the effect on taxable income if Abbey is (a) a corporation; (b) an individual?
Long-term capital gain $2,000
Long-term capital loss 12,000
Section 1231 gain 20,000
Section 1231 loss 15,000
Short-term capital gain 3,000
Short-term capital loss 2,000

Question 25

In what order are capital gains subject to the 15%/20%, 25%, and 28% capital gains included in taxable income in the determination of the tax liability?

Question 26

Bill is single with taxable income of $95,000 and in the 24 percent tax bracket in 2018. During the year, he sold some stock held for 11 months at a $500 gain, gold coins held for two years at a $1,900 loss, antique toys held three years at a $2,200 gain, bonds held for two years for $400 gain, and some investment land held six months at a $300 loss. Determine Bill's net capital gain or loss and detail how it will be treated for tax purposes.

Question 27

What is the difference between a realized gain or loss and a recognized gain or loss?

Question 28

How are individual and corporate net capital losses treated?

Question 29

What is Section 291 recapture?

Question 30

What did Congress do to close the loophole that allowed a person to exclude the gain on a primary personal residence and then later claim the exclusion on a vacation home that was owned at the same time as the primary residence?

Question 31

When does an asset have a substituted basis?

Question 32

What is the effect of the Section 1231 look-back rules?

Question 33

In what order are capital gains subject to the 15%/20%, 25%, and 28% capital gains tax rates included in taxable income in the determination of the tax liability?

Question 34

Janeway Corporation has ordinary taxable income of $127,000 in 2018 before consideration of any of the following property transactions. It sold two blocks of stocks held for investment: one yielded a short-term capital gain of $8,000 and the other a long-term capital loss of $14,000. In addition, it sold four pieces of machinery used for three years for $30,000. The machines had cost $50,000 originally and had $35,000 of depreciation deductions taken. They also sold a building for $400,000 that they had purchased in 2000 for $390,000. The depreciation deductions up to the date of sale were $89,000. Determine the amount and type of the net gains and losses from the property transactions and Janeway Corporation's taxable income for 2018.

Question 35

What are the basic long-term capital gain tax rates and to which asset gains do they apply?

Question 36

A taxpayer has the following gains and losses from property transactions completed in 2018. What is the effect on the taxpayer's taxable income and income tax if the taxpayer is (a) an individual or (b) a corporation?
Long-term capital gain $21,000
Section 1231 gain 10,000
Section 1231 loss 12,000
Short-term capital gain 3,000
Short-term capital loss 18,000

Question 37

Determine the amount of the capital gain or loss in each of the following transactions and state whether the gain or loss is long-term or short-term.

A) 100 shares of Bilco stock bought for $8,000 on January 22 of year 3 and sold for $10,000 on January 22 of year 4.
B) 20 acres of investment land bought for $8,000 on January 31 of year 3 and sold for $7,000 on February 2 of year 4.
C) 150 shares of Data stock bought for $15,000 on April 1 of year 2 and sold for $17,000 on May 28 of year 4.

Question 38

Carlos provides you with the following information for years 1 and 2, exclusive of capital loss carryovers:
STCG STCL LTCG LTCL
Year 1 0 $2,400 $400 $3,500
Year 2 $500 $ 700 $900 $1,000
Determine the amount and type of capital loss deduction each year, if any, and the carryover to the following year.

Question 39

What are the basic differences between Section 1245 and Section 1250 depreciation recapture?

Question 40

What is depreciation recapture?

Question 41

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 recapture, Section 291 recapture, or Section 1250 unrecaptured gain.
Emma sold her home for $60,000 cash and the buyer's assumption of her mortgage of $210,000. Emma paid closing costs of $2,900 and a broker's commission of $13,000. What is the amount Emma realized on the sale?

A) $17,100
B) $20,000
C) $254,100
D) $257,000

Question 42

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 recapture, Section 291 recapture, or Section 1250 unrecaptured gain.
Loss on the sale of municipal bonds by a corporation.

Question 43

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 recapture, Section 291 recapture, or Section 1250 unrecaptured gain.
Grill Corporation sold all of its business assets when it went out of business. Which of the following is a capital asset?

A) Inventory
B) Office equipment
C) Goodwill
D) Factory machinery

Question 44

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 recapture, Section 291 recapture, or Section 1250 unrecaptured gain.
Loss on the sale of equipment used in a business for three years.

Question 45

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 recapture, Section 291 recapture, or Section 1250 unrecaptured gain.
A business sells a machine used in its business for $18,000. It had purchased the machine 10 months earlier for $26,000. What is the amount and type of the $8,000 loss on the sale of the asset?

A) Ordinary loss
B) Section 1231 loss
C) Section 1245 loss
D) Capital loss

Question 46

Vanessa bought 2,000 shares of Glenco stock when the company was first formed for $57,000. The company had $900,000 of total capital when formed and the stock qualified as Section 1244 stock. Vanessa sold the stock three years later for $3,000. If Vanessa is single, how much gain or loss does she have on the sale of the stock and how will it be treated by her?

Question 47

Nancy sold her Section 1202 stock for $9,000,000 on August 7, 2017. She had purchased the stock nine years ago for $1,500,000. She invested $4,500,000 in other qualifying Section 1202 stock. How will Nancy treat the gain on this sale for tax purposes? How would your answer change if the stock is instead sold in 2018?

Question 48

George and Sally sold their primary residence in New Jersey on January 1, 2016 after having lived in the home for 20 years. (They used their $500,000 exclusion to avoid recognizing their $289,000 gain on the sale.) They decided to become permanent Florida residents and moved into the condominium they had purchased on January 2, 2014 at a foreclosure auction. Unfortunately, Sally missed all of her friends and family in New Jersey and in the latter part of 2018, they put the condominium up for sale and they sold it on January 2, 2019. They had purchased the condominium for only $65,000 and after putting in improvements at a cost of $21,000, they were able to sell it for $525,000. What is their realized and recognized gain on the sale of the condominium?

Question 49

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 recapture, Section 291 recapture, or Section 1250 unrecaptured gain.
Gain on sale of a building used by a sole proprietorship for eight years in excess of its original cost.

Question 50

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 recapture, Section 291 recapture, or Section 1250 unrecaptured gain.
Gain on the sale of inventory.

Question 51

Taxpayer B has the following gains and losses from property transactions. What is the effect on the taxpayer's taxable income if Taxpayer B is (a) a corporation; (b) an individual?
Long-term capital gain $6,000
Long-term capital loss 20,000
Section 1231 gain 8,000
Section 1231 loss 5,000
Short-term capital gain 23,000
Short-term capital loss 6,000

Question 52

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 recapture, Section 291 recapture, or Section 1250 unrecaptured gain.
Wesley sold a piece of property for $30,000 cash paying a $3,000 sales commission. The buyer assumed Wesley's $13,000 mortgage on the property. Wesley had purchased the property for $15,000 and had invested an additional $6,000 in it. What is Wesley's realized gain on the sale?

A) $6,000
B) $9,000
C) $19,000
D) $22,000

Question 53

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 recapture, Section 291 recapture, or Section 1250 unrecaptured gain.
The following properties have been owned by a business for more than one year. Which of them would not qualify for Section 1231 treatment on its disposal?

A) Property held for rental income
B) Leasehold improvements
C) Stock held in inventory
D) Depreciable assets used in the business

Question 54

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 recapture, Section 291 recapture, or Section 1250 unrecaptured gain.
Gain on the sale of stock by an individual.

Question 55

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 recapture, Section 291 recapture, or Section 1250 unrecaptured gain.
Loss on the factoring of receivables.

Question 56

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 recapture, Section 291 recapture, or Section 1250 unrecaptured gain.
Gain on the sale of a machine used by a business for four years sold at a price less than its original cost.

Question 57

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 recapture, Section 291 recapture, or Section 1250 unrecaptured gain.
Gain on the sale of a building used for 15 years by a corporation.

Question 58

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 recapture, Section 291 recapture, or Section 1250 unrecaptured gain.
Gain on the sale of a personal residence.

Question 59

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 recapture, Section 291 recapture, or Section 1250 unrecaptured gain.
Gain on the sale of a machine used by a business for 11 months.

Question 60

Craig and Sally, a married couple, file a joint tax return and report taxable income (excluding their home sale) of $325,000 for 2018. They purchased their home on December 1, 2016 for $250,000 and have made $100,000 of improvements during the time they owned the home. They sold the home on May 31, 2018 after Craig accepted a job in another state netting $775,000 after the expenses of the sale. What are the tax consequences of this sale?

Question 61

On January 4, 2018, Courtney gave his son, Brian, stock valued at $10,000 that he had purchased three years earlier for $16,000. Later in the year, Brian sold the stock for $11,000. What is the amount and type of gain or loss that Brian will report on this sale?

A) $1,000 short-term capital loss
B) $1,000 short-term capital gain
C) $1,000 long-term capital gain
D) No gain or loss

Question 62

Which of the following is a capital asset?

A) Accounts receivable of a business
B) Personal auto
C) Land used as a movie theater parking lot
D) Business office furniture

Question 63

What are the carryover provisions for unused capital losses applicable to corporations?

A) Carry back 3 years and forward 5 years
B) Carry back 2 years and forward 20 years
C) Carry forward 20 years only
D) Carry forward indefinitely

Question 64

Ginger sold stock that she had purchased five years ago for $15,000 to her brother, Carl, for $12,000. The next month, Carl sold the stock for $11,000. What is the amount and type of gain or loss included in Carl's income from this sale?

A) $1,000 short-term capital loss
B) $1,000 long-term capital loss
C) $4,000 short-term capital loss
D) $4,000 long-term capital loss

Question 65

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 recapture, Section 291 recapture, or Section 1250 unrecaptured gain.
Noah sold investment land for $70,000 cash and the buyer's assumption of Noah's $30,000 mortgage on the property. Noah paid a realtor's commission of $2,800 on the sale. What is Noah's realized gain if the land has an adjusted basis of $57,000?

A) $43,000
B) $40,200
C) $13,000
D) $10,200

Question 66

During the current year, Zach had taxable income of $100,000 before considering the following property transactions: Two years ago Zach had a $4,000 gain from the sale of a Section 1231 asset but last year Zach had no capital or Section 1231 gains or losses. What effect will the above property transactions have on Zach current taxable income and will there be any carryforward or carryback of gains or losses?

A) Reduces Zach's current taxable income by $4,000
B) Reduces Zach's current taxable income by $3,000 and he will carry $1,000 loss forward
C) Zach has $1,000 additional ordinary income this year due to recapture and he can carry the remaining losses forward
D) Zach has $1,000 additional ordinary income this year due to recapture, he can deduct $3,000 loss this year, and can carry any remaining losses forward

Question 67

Sheldon had salary income of $40,000. In addition, he had the following gains and losses on his property transactions: Long-term capital gain = $14,000; long-term capital loss = $6,000; short-term capital gain = $4,000; short-term capital loss = $8,000. If Sheldon has no other income items, what is his total income before any deductions for the year?

A) $44,000
B) $47,000
C) $48,000
D) $52,000

Question 68

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 recapture, Section 291 recapture, or Section 1250 unrecaptured gain.
Lopez Corporation sold equipment that is had purchased for $300,000 ($100,000 cash and a note for $200,000) four years ago.. As of the date of sale, Lopez had claimed $187,500 in accumulated depreciation on this equipment and had made $50,000 in principal payments on the note. Lopez received $80,000 cash and a note for $100,000 in addition to the purchaser assuming Lopez's $150,000 note on the equipment. What is Lopez Corporation's realized gain on the sale?

A) $217,500
B) $187,500
C) $112,500
D) $67,500

Question 69

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 recapture, Section 291 recapture, or Section 1250 unrecaptured gain.
Lopez Corporation sold equipment that it had purchased for $300,000 ($100,000 cash and a note for $200,000) four years ago. As of the date of sale, Lopez had claimed $187,500 in accumulated depreciation on this equipment and had made $50,000 in principal payments on the note. Lopez received $80,000 cash and a note for $100,000 in addition to the purchaser assuming Lopez's $150,000 note on the equipment. What is the amount realized by Lopez Corporation on this sale?

A) $80,000
B) $180,000
C) $300,000
D) $330,000

Question 70

Identify the type(s) of gain or loss that would be recognized on the following asset sales as capital, Section 1231, ordinary, Section 1245 recapture, Section 291 recapture, or Section 1250 unrecaptured gain.
Mason received $20,000 cash and equipment worth $10,000 in exchange for land that was encumbered by an $80,000 mortgage that the buyer assumed. Mason's basis for the land is $90,000. What is Mason's realized gain or loss on the sale?

A) $20,000 realized gain
B) $10,000 realized gain
C) $10,000 realized loss
D) no realized gain or loss

Question 71

Ethan, a sole proprietor, sold the following assets in 2018: The equipment was purchased several years ago but the XYZ stock was purchased as an investment on 3/9/18 and was sold on 11/15/18. Ethan is in the 32% marginal tax bracket for 2018. At the beginning of 2018, he had $2,000 of unrecaptured Section 1231 losses from 2 years ago. How much additional tax will Ethan pay as a result of these transactions?

A) $1,200
B) $1,650
C) $2,390
D) $2,640

Question 72

Coley Corporation has an $800 net short-term capital loss and a $6,000 net long-term capital gain in the current year. It also has an $8,000 long-term capital loss carryover from the prior year. What is Coley's capital loss carryover to the next year?

A) $0
B) $2,000
C) $2,800
D) $8,800

Question 73

Vero Corporation owns $200,000 of equipment used for its business and the building that the business is located in that is valued at $175,000. The business is successful and has investments in marketable securities valued at $45,000. What is the value of its capital assets?

A) $45,000
B) $75,000
C) $275,000
D) $320,000

Question 74

Edna had $20,000 of ordinary income. In addition, she had a $1,500 short-term capital gain on one stock and a $4,900 long-term capital loss on another. What is her adjusted gross income?

A) $21,500
B) $17,000
C) $16,600
D) $15,100

Question 75

Cliff owned investment stock purchased three years ago for $16,000 and bonds purchased six months ago for $9,800. When he needed money recently, he sold the stock for $13,800 and the bonds for $10,100. What is the amount and type of net gain or loss that Cliff will include in computing his taxable income?

A) $2,200 long-term capital loss
B) $1,900 long-term capital gain
C) $1,900 long-term capital loss
D) $300 short-term capital gain

Question 76

On March 17, a calendar-year taxpayer sells a machine used in its business for $9,500. The machine was purchased sixteen months earlier for $9,000 and depreciation deductions of $1,800 have been taken. What is the amount and type of gain recognized on the sale?

A) $2,300 Section 1231 gain
B) $2,300 ordinary income
C) $1,800 Section 1245 recapture; $500 Section 1231 gain
D) $1,800 Section 1250 recapture; $500 Section 1231 gain

Question 77

What are the carryover provisions for unused capital losses applicable to individuals?

A) Carry back 3 years and forward 5 years
B) Carry back 2 years and forward 20 years
C) Carry forward 20 years only
D) Carry forward indefinitely

Question 78

In 2018, Isabella sold several shares of different stocks held for investment. The following is a summary of her capital transactions for the year: What is the amount of Isabella's net capital gains or losses for 2018?

A) $1,300 long-term capital gain
B) $850 long-term capital gain and $450 short-term capital gain
C) $1,050 long-term capital loss and $250 short-term capital loss
D) $1,050 long-term capital gain and $250 short-term capital gain

Question 79

Brent sold his personal car and some household furniture during the year. He had a $3,000 gain on the car but a $5,000 loss on the furniture. What is his recognized gain or loss included in taxable income as a result of these sales?

A) 0
B) $2,000 loss
C) $3,000 gain
D) $5,000 loss

Question 80

Alpha Corporation had income from operations of $30,000. What is the corporation's taxable income including the following property transactions: Gain on investment stock held for two years = $8,000; loss on machinery held three years = $6,000; $4,000 loss on equipment held 10 months; $4,000 gain on land used for six years for storage of trucks.

A) $25,000
B) $27,000
C) $30,000
D) $32,000