Deck 7: Property Dispositions

Question 1

_____ 12.A net Section 1231 gain is given the tax-favored treatment of a long-term capital asset.

Answer 1

True

Question 2

_____ 5.All assets owned by a trade or business are Section 1231 assets.

Answer 2

False

Question 3

_____ 17.In 2013,capital gains can only be taxed at 0%,10%,15%,20%,25%,or 28%.

Answer 3

False

Question 4

_____ 8.A mixed-use asset is an asset that is used for both personal purposes and business activities.

Question 5

_____ 9.Gain representing depreciation recapture is taxed at ordinary income rates.

Question 6

_____ 1.The tax effect of a sale of an asset at a gain increases the cash flow from the sale.

Question 7

_____ 3.The holding period for a long-term capital asset is only one year for tax-favored treatment.

Question 8

_____ 10.Section 1245 recapture is primarily applicable to realty.

Question 9

_____ 2.A gain must be recognized unless some tax provision allows nonrecognition or deferral.

Question 10

_____ 16.A taxpayer who disposes of his or her home in a short sale must recognize up to $1 million in cancellation of indebtedness income.

Question 11

_____ 6.The most common ordinary income assets are receivables and inventory.

Question 12

_____ 15.Corporate net capital gains receive no tax-favored treatment.

Question 13

_____ 11.Section 291 recapture only applies to a corporation.

Question 14

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 15

_____ 7.A personal residence owned by an individual is a capital asset.

Question 16

_____ 13.The Section 1231 look-back rules change the character of capital losses incurred in the previous 5 years.

Question 17

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 18

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 19

_____ 14.Individuals can only deduct capital losses to the extent of prior capital gains plus $5,000.

Question 20

_____ 4.The holding period for an asset acquired by inheritance is determined by including the period the asset was held by the decedent.

Question 21

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 22

During the current tax year,the Jeckel Company has the following gains and losses from property transactions: $12,000 Section 1231 gain
$23,000 long-term capital gain
$21,000 Section 1231 loss
$4,000 Section 1231 gain
What is the amount and type of gain or loss reported by Jeckel for the year?

A)$21,000 Section 1231 loss;$39,000 capital gain
B)$16,000 Section 1231 gain;$21,000 Section 1231 loss;$23,000 capital gain
C)$18,000 net capital loss
D)$5,000 net Section 1231 loss;$23,000 capital gain
E)None of the above

Question 23

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 24

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 25

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 26

Caldwell Corporation sold a factory building for $300,000.The building originally cost $600,000 and had an adjusted basis of $200,000 due to the $400,000 depreciation taken when it was sold.What is Caldwell's Section 1231 gain on the sale of the property?

A)$400,000
B)$300,000
C)$100,000
D)$80,000

Question 27

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 28

An individual taxpayer has the following property transactions during the current year: Personal automobile owned 3 years $4,000 loss on sale
Business equipment owned 3 years $5,600 gain on sale
Factoring of receivables $6,200 loss
Common stock owned 7 months $3,500 gain on sale
How do these transactions affect the individual's AGI?

A)AGI is increased by $2,900
B)AGI is decreased by $1,100
C)AGI is increased by $9,100
D)AGI is decreased by $2,900
E)None of the above

Question 29

Bobsy Company has a $14,000 net Section 1231 gain for the current tax year from its only property transaction.In the previous year,it had a $7,000 net Section 1231 loss.For the current year,the net Section 1231 gain will be taxed as:

A)A $14,000 ordinary income
B)A $14,000 capital income
C)A $7,000 ordinary income and a $7,000 long-term capital gain
D)A $7,000 ordinary income and a $7,000 short-term capital gain
E)None of the above

Question 30

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 31

Jason sells a piece of equipment for $43,000.The equipment was purchased four years ago for $56,000.It was depreciated using an accelerated method of depreciation.Its adjusted basis at the time of sale is $21,000.Straight-line depreciation would have been only $20,000.What is the amount and type of gain Jordan recognizes on this sale?

A)$22,000 Section 1231 gain
B)$22,000 Section 1245 gain
C)$22,000 capital gain
D)$1,000 Section 1250;$21,000 Section 1231gain
E)None of the above

Question 32

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 33

Angel sells the following depreciable assets from her sole proprietorship: Asset Cost Age Gain/Loss
Office furniture $10,000 4 years ($2,400)
Truck $20,000 5 years 3,100
Bakery equipment $25,000 9 months (4,500)
What should Angel report on her income tax return relative to these property transactions?

A)$3,800 capital loss
B)$3,100 Section 1245 recapture;$2,400 Section 1231 loss;$4,500 ordinary loss
C)$3,800 ordinary loss
D)$700 Section 1231 gain;$4,500 ordinary loss
E)None of the above

Question 34

Paul has a $45,000 net Section 1231 gain in the current tax year from his only property transaction.Last year he had a $12,000 net Section 1231 gain,but two years ago he had a $51,000 net Section 1231 loss.If he has no other property transactions in the current year,Paul will treat the net Section 1231 gain as:

A)$45,000 capital gain
B)$45,000 ordinary income
C)$39,000 ordinary income;$6,000 Section 1245 gain
D)$39,000 ordinary income;$6,000 long-term capital gain
E)None of the above

Question 35

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 36

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 = $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

Question 37

Quidik Corporation sold a machine for $80,000 that it had acquired three years ago for $68,000.If its adjusted basis when sold was $50,000,what should Quidik report on its tax return as a result of this sale?

A)Section 1245 recapture of $18,000;Section 1231 gain of $30,000;
B)Ordinary income = $12,000 and Section 1231 gain = $18,000
C)Section 1245 recapture = $18,000 and Section 1231 = $12,000;
D)Section 1231 gain = $38,000

Question 38

The Walford Partnership sold an apartment building for $300,000 that it had purchased for $280,000 ten years ago.The partnership had taken $80,000 of depreciation deductions on the building.What is the amount and type of gain realized by the partnership?

A)$16,000 Section 1250 gain;$84,000 Section 1231 gain
B)$80,000 Section 1245 gain;$20,000 Section 1231 gain
C)$80,000 Section 1250 gain;$20,000 Section 1231 gain
D)$100,000 Section 1231 gain

Question 39

A corporation sells a machine used for 9 years in its business for $22,000.The machine originally cost $120,000 and was fully depreciated.Its gain will be treated as:

A)Capital gain
B)Section 1231 gain
C)Section 1245 recapture
D)Section 1250 recapture

Question 40

During the current year,Mrs.Mayhew received a used computer as a gift from her son for her personal use.The computer has a current fair market value of $350 and cost her son $850.He took $400 of depreciation deductions while it was used in his business.Mrs.Mayhew uses the computer for several years and then sells it for $200.What is the amount and type of gain or loss that Mrs.Mayhew recognizes on the sale?

A)$0 gain or loss
B)$150 Section 1245 loss
C)$150 Section 1231 loss
D)$250 Section 1231 loss
E)None of the above

Question 41

Melody works in her home.She purchased a computer two years ago for $2,500.The total adjusted basis for the computer is now $1,000.Her husband and children used the computer 20 percent of the time to play computer games and for personal correspondence.She sells the computer for $1,200.How much and what kind of gain does Melody recognize?

A)$200 capital gain
B)$200 Section 1245 recapture
C)$200 Section 1231gain
D)$460 Section 1245 recapture
E)None of the above

Question 42

Which of the following is correct?

A)The Section 1231 lookback rule converts potential long-term capital gain into ordinary income.
B)The Section 1231 lookback rule converts ordinary gain into ordinary loss.
C)The Section 1231 lookback rule converts casualty gain into long-term capital gain.
D)The Section 1231 lookback rule applies only to realty.

Question 43

Becky bought a home with her husband,Ken,in 1999 for $125,000.They were divorced in 2008 and Becky became sole owner of the home under the divorce decree.On January 5,2012,Becky married Michael.Michael and Becky have been living in the house since their marriage but they are planning now to move.If Michael and Becky sell their home on December 15,2013 for $500,000,how much taxable gain must they report on their 2013 joint tax return?

A)zero
B)$125,000
C)$250,000
D)$375,000

Question 44

Which of the following statements concerning the exclusion available under Section 121 for the sale of a personal residence is correct?

A)This provision allows 50% of the gain from sale of any residence to be excluded from income.
B)A vacation home used as a residence for at least five months of the year will qualify for this exclusion.
C)It is possible for taxpayers to sell their home and qualify for this exclusion every two years.
D)The gain on the sale can be deferred and rolled over into another residence instead of electing the exclusion.

Question 45

Tina is single and one of the founding shareholders of Exacta Corporation.She acquired her Exacta Section 1244 stock four years ago for $123,000.During the current year,Tina sold all of her Exacta stock to an unrelated party for $40,000.Tina had no other capital gains or losses during the year.What is the maximum amount of loss Tina can deduct in the current year for the Exacta stock?

A)$83,000
B)$53,000
C)$50,000
D)$3,000

Question 46

Margo purchased 2,000 share of qualifying Section 1202 stock six years ago for $200,000.In the current year,she sold the stock for $2,000,000.How much gain can she exclude from her income?

A)$2,000,000
B)$1,800,000
C)$900,000
D)$200,000
E)None of the above

Question 47

Martone Corporation sells two machines and a warehouse it has been using for storage in the current tax year.Each of the machines cost $25,000 and has an adjusted basis of $11,000 when each was sold for $14,000.The warehouse cost $105,000,has an adjusted basis of $60,000 and is sold for $95,000.All assets were depreciated using MACRS depreciation.What is the amount and type of gain recognized by Martone on the sale of these assets?

A)$6,000 Section 1245 recapture;$35,000 Section 1231 gain
B)$6,000 Section 1245 recapture;$7,000 Section 291 recapture;$28,000 Section 1231 gain
C)$6,000 section 1245 recapture;$35,000 Section 291 recapture
D)$41,000 capital gain
E)None of the above

Question 48

Donza Company has unrecaptured Section 1231 losses from the two previous years totaling $25,000 and a $32,000 Section 1231 gain in the current year.Based on this information,all of the following statements concerning Donza's taxable income for the current year are correct except:

A)Taxable ordinary income is $25,000
B)Taxable capital gain is $7,000
C)The amount taxable as ordinary income is the lesser of the unrecaptured losses or the current Section 1231 gain
D)Unrecaptured Section 1231 losses are taxable as capital gain

Question 49

Marvin sold his sister,Sue,some stock for $20,000 that he had purchased two years ago for $25,000.Nine months later,Sue sold the stock for $27,000.How much gain does Sue recognize on the sale?

A)$7,000
B)$3,000
C)$2,000
D)0

Question 50

Abby has a $10,000 loss on some collectibles,a $5,000 Sec.1202 gain,and an $11,000 gain on some securities.If all gains and losses are long-term and Abby is in the 25 percent tax bracket,how is her net gain taxed?

A)$5,000 at 25%;$1,000 at 15%
B)$6,000 at 15%
C)$5,000 at 28%;$1,000 at 15%
D)$6,000 at 28%
E)None of the above

Question 51

Shawn,a single taxpayer,sold the house he has lived in for seven years for $700,000.He purchased the house for $285,000.He made improvements at a cost of $125,000 and paid a $30,000 commission on the sale.What are Shawn's realized and recognized gains on the sale?

A)$260,000 realized and recognized
B)$290,000 realized and recognized
C)$260,000 realized and $10,000 recognized
D)$260,000 realized and no gain recognized
E)None of the above

Question 52

Kelly,a single individual,has $15,000 of taxable income before a long-term capital gain of $5,000 on the sale of some stock owned for two years that she sold in 2013.What is the tax rate applied to this gain?

A)5 percent
B)10 percent
C)15 percent
D)20 percent
E)None of the above

Question 53

Which of the following is not a requirement for the stock of a corporation to be considered Section 1244 stock?

A)The stock must be voting stock
B)The corporation must qualify as a small business corporation
C)The corporation must be a domestic corporation
D)The stock must be issued for money or property
E)None of the above

Question 54

Bennett owns all of the outstanding stock of Bennett Company.In 2013 Bennett sells all of his stock in the company for $30,000.If the stock qualifies as Section 1244,Bennett is single,and his basis in the stock is $140,000,how is his loss on the sale classified for tax purposes?

A)$110,000 capital loss
B)$110,000 ordinary loss
C)$60,000 capital loss;$50,000 ordinary loss
D)$100,000 ordinary loss;$10,000 capital loss
E)None of the above

Question 55

Ginger sold stock that she had purchased five years ago for $15,000 to her brother,Carl,for $12,000.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)0
B)$1,000 short-term capital loss
C)$ 1,000 long-term capital loss
D)$4,000 short-term capital loss
E)$4,000 long-term capital loss

Question 56

William purchased his personal residence in 2007 for $285,000.In 2012,he lost his job and has been unable to make payments on the mortgage since July of 2012.In 2013,William works out a new repayment schedule with his bank after he obtained a new job that reduces his mortgage from $235,000 to $120,000.Which of the following statements is true regarding this mortgage reduction?

A)William will be required to include the debt in income because he is continues to own the home.
B)William will have to include any forgiveness of debt income only if he sells the house for more than $285,000.
C)The basis of the home for any future sale is $120,000.
D)The basis of the home on any future sale is $150,000..

Question 57

Wally (who is in the 25 percent tax bracket)has a $5,000 short-term capital loss on some bonds,a $6,000 long-term capital loss on collectibles,a $15,000 Section 1202 gain,and a net $4,000 long-term capital gain from an investment.What is amount and type of gain(s)and tax rate(s)applied?

A)$8,000 gain at 28%
B)$8,000 long-term capital gain at 15%
C)$4,000 gain at 28%;$4,000 long-term capital gain at 15%
D)$4,000 gain at 25%;$4,000 long-term capital gain at 15%
E)None of the above

Question 58

Justin,who is single,sells his principal residence that he has owned and occupied for the past five years.His adjusted basis for the residence is $90,000.He incurred selling expenses of $10,000.How much gain must Justin recognize if sells the residence for $390,000?

A)0
B)$40,000
C)$50,000
D)$290,000
E)$300,000

Question 59

Which of the following comparisons is correct?

A)Both individual and corporate long-term capital losses carryover as short-term capital losses.
B)Individuals may only carry forward capital losses for five years;corporations may carry forward capital losses indefinitely;
C)Both individuals and corporations may use the 15% tax rate on net capital gains.
D)Corporations may carry back capital losses;individuals may not.

Question 60

Carol used her auto 60 percent for business and 40 percent for personal use.She purchased it for $10,800 and has taken $3,992 of depreciation on it.What is her recognized gain on a sale for $7,800 and what is it character?

A)$6,808 Section 1231 gain
B)$3,808 Section 1245 recapture
C)$2,192 Section 1245 recapture
D)$992 Section 1231 gain
E)None of the above