Question 1

The sale of inventory results in ordinary gain or loss.

Accepted Answer

A) True 
 B)False

Question 2

All of the following are considered related parties for purposes of Sec.1239 recapture with the exception of

Accepted Answer

A) an individual and a partnership where the individual has a one-fourth interest in the partnership. 
B) an individual and a corporation where the individual owns more than 50% of the value of the outstanding stock of the corporation. 
C) an individual and a corporation where the individual's spouse owns more than 50% of the value of the outstanding stock of the corporation. 
D) an individual and a partnership where the individual owns more than 50% of the capital of the partnership.

Question 3

Dinah owned land with a FMV of $130,000 (adjusted basis $120,000)which is investment property (a capital asset).Dinah owned a second tract of land,a 1231 asset,with a FMV of $46,000 (adjusted basis $50,000).Both tracts were acquired in 2001 and condemned by the state this year.The state paid an amount equal to FMV.If there are no other transactions involving capital assets or 1231 assets,Dinah must report on her current year return

Accepted Answer

A) $6,000 net ordinary income. 
B) $6,000 net section 1231 gain treated as a net capital gain. 
C) a LTCG of $10,000 and a 1231 loss of $4,000. 
D) a LTCG of $10,000 and a nondeductible loss of $4,000.

Question 4

Frisco Inc. ,a C corporation,placed a building in service in 2002 and deducted straight-line depreciation under the MACRS system in the normal manner.It sold the building this year for a substantial gain.Because straight-line depreciation was used,Frisco will not need to recognize any ordinary gain.

Accepted Answer

A) True 
 B)False

Question 5

Hilton,a single taxpayer in the 28% marginal tax bracket,has $16,000 of nonrecaptured net Sec.1231 losses,at the beginning of a year in which he had the following transactions:
-Sale of Asset A at a $10,000 1231 gain,all of which is unrecaptured Sec.1250 gain
-Sale of Asset B at a $13,000 1231 gain
How are the items reported this year and at which rate(s)are the amounts taxed?

Accepted Answer

The answer of Hilton,a single taxpayer in the 28% marginal...

Question 6

Pierce has a $16,000 Section 1231 loss,a $12,000 Section 1231 gain,and a salary of $50,000.What is the treatment of these items in Pierce's AGI?

Accepted Answer

A) Pierce has a LTCG of $12,000 and a net ordinary income of $34,000. 
B) The 1231 gains and losses are treated as ordinary gains and losses making Pierce's AGI for the year $46,000. 
C) Pierce has a $3,000 LTCL which is deductible for AGI making AGI $47,000.He also has a $1,000 LTCL carryover. 
D) Pierce has net LTCG of $9,000 and $37,000 of net ordinary income.

Question 7

Why did Congress establish favorable treatment for 1231 assets?

Accepted Answer

A) to encourage the mobility of capital 
B) to allow a larger deduction for losses 
C) to help business owners replace assets which had declined in value 
D) All of the above

Question 8

A corporation sold a warehouse during the current year.The straight-line depreciation method was used.Information about the building is presented below:  How much gain should the corporation report as section 1231 gain?

Accepted Answer

A) $124,000 
B) $620,000 
C) $586,000 
D) $710,000

Question 9

When appreciated property is transferred at death,the recapture potential carries over to the person who receives the property from the decedent.

Accepted Answer

A) True 
 B)False

Question 10

Jaiyoun sells Sec.1231 property this year,resulting in a $4,000 gain.This is the first time he has disposed of any Sec.1231 property.Jaiyoun's tax rate is 10%.His tax on the Sec.1231 gain will be

Accepted Answer

A) $0. 
B) $400. 
C) $600. 
D) $1,120.

Question 11

During the current year,George recognizes a $30,000 Section 1231 gain on sale of land and a $18,000 Section 1231 loss on the sale of land.Prior to this,George's only Section 1231 item was a $14,000 loss six years ago.George must report a

Accepted Answer

A) $12,000 net LTCG. 
B) $12,000 ordinary income. 
C) $14,000 ordinary income. 
D) $10,000 ordinary income and $2,000 net LTCG.

Question 12

Emma owns a small building ($120,000 basis and $123,000 FMV)and equipment ($35,000 basis and $22,000 FMV).Both assets were acquired three years ago,are used in Emma's business,and are depreciated using straight-line depreciation.Both are destroyed by fire.Insurance proceeds were equal to their FMVs.Only one other transfer of an asset occurs during the year,and a $3,000 LTCL is recognized.After considering all transactions,the tax result to Emma is a

Accepted Answer

A) $13,000 NLTCL. 
B) $13,000 ordinary loss. 
C) $3,000 LTCG;$3,000 LTCL;and $13,000 ordinary loss. 
D) $10,000 net ordinary loss and a $3,000 NLTCL.

Question 13

Alejandro purchased a building in 1985,which he uses in his manufacturing business.Alejandro uses the ACRS statutory rates to determine the cost-recovery deduction for the building.Alejandro's original cost for the building is $500,000 and cost-recovery deductions allowed are $500,000.If the building is sold for $800,000,the tax results to Alejandro are

Accepted Answer

A) $500,000 Sec.1245 ordinary income and $300,000 Sec.1231 gain. 
B) $800,000 Sec.1245 ordinary income. 
C) $500,000 Sec.1245 ordinary income and $300,000 Sec.1250 income. 
D) $800,000 Sec.1231 gain.

Question 14

A taxpayer has a gain on Sec.1245 property.None of the gain will be treated as Sec.1231 gain unless the sale price exceeds the original cost.

Accepted Answer

A) True 
 B)False

Question 15

The purpose of Sec.1245 is to eliminate the advantage taxpayers would have if they were able to reduce ordinary income by depreciation deductions and also receive favorable Sec.1231 treatment when the asset was sold.

Accepted Answer

A) True 
 B)False

Question 16

Harry owns equipment ($50,000 basis and $38,000 FMV)and a building ($140,000 basis and $156,000 FMV),which are used in his business.Harry uses straight-line depreciation for both assets,which were acquired several years ago.Both the equipment and the building are destroyed in a fire,and Harry collects insurance proceeds equal to the assets' FMV.The tax result to Harry for this transaction is

Accepted Answer

A) the involuntary conversions are treated as ordinary gains and losses. 
B) the involuntary conversions are treated as Sec.1231 gains and losses. 
C) the loss on involuntary conversion is treated as a Sec.1231 loss while the gain is treated as an ordinary gain. 
D) the loss on involuntary conversion is treated as an ordinary loss while the gain is treated as a Sec.1231 gain.

Question 17

During the current year,Hugo sells equipment for $150,000.The equipment cost $175,000 when placed in service two years ago,and $55,000 of depreciation deductions were allowed.The results of the sale are

Accepted Answer

A) LTCG of $30,000. 
B) Sec.1231 gain of $30,000. 
C) Sec.1245 ordinary income $30,000. 
D) Sec.1250 ordinary income of $30,000.

Question 18

Jillian,whose tax rate is 39.6%,had the following sales of Section 1231 property this year:
Sale of land A at a gain of $15,000
Sale of land B at a gain of $12,000
Sale of land C at a loss of $8,000
a.What is the amount of her resulting tax liability?
b.Assume instead that Jillian has a 15% marginal tax rate.What is the amount of her resulting tax liability?
c.Assume instead that Jillian has a 28% marginal tax rate.What is the amount of her resulting tax liability?

Accepted Answer

The answer of Jillian,whose tax rate is 39.6%,had the following...

Question 19

The following are gains and losses recognized in 2016 on Ann's business assets that were held for more than one year.The assets qualify as Sec.1231 property.
  A summary of Ann's net Sec.1231 gains and losses for the previous five-year period is as follows:
  Describe the specific tax treatment of each of the current year transactions.

Accepted Answer

The answer of The following are gains and losses recognized...

Question 20

For livestock to be considered Section 1231 property,

Accepted Answer

A) the livestock must be held for draft,breeding or dairy purposes,but not for sport. 
B) cattle and horses must be held for at least 12 months from the date of acquisition. 
C) cattle and horses must be held for at least 24 months from the date of acquisition. 
D) livestock other than cattle and horses must be held for at least 24 months from the date of acquisition.

Exam 13: Property Transactions: Section 1231 and Recapture

The sale of inventory results in ordinary gain or loss.

All of the following are considered related parties for purposes of Sec.1239 recapture with the exception of

Pierce has a $16,000 Section 1231 loss,a $12,000 Section 1231 gain,and a salary of $50,000.What is the treatment of these items in Pierce's AGI?

Why did Congress establish favorable treatment for 1231 assets?

A corporation sold a warehouse during the current year.The straight-line depreciation method was used.Information about the building is presented below: How much gain should the corporation report as section 1231 gain?

When appreciated property is transferred at death,the recapture potential carries over to the person who receives the property from the decedent.

Jaiyoun sells Sec.1231 property this year,resulting in a $4,000 gain.This is the first time he has disposed of any Sec.1231 property.Jaiyoun's tax rate is 10%.His tax on the Sec.1231 gain will be

During the current year,George recognizes a $30,000 Section 1231 gain on sale of land and a $18,000 Section 1231 loss on the sale of land.Prior to this,George's only Section 1231 item was a $14,000 loss six years ago.George must report a

A taxpayer has a gain on Sec.1245 property.None of the gain will be treated as Sec.1231 gain unless the sale price exceeds the original cost.

The purpose of Sec.1245 is to eliminate the advantage taxpayers would have if they were able to reduce ordinary income by depreciation deductions and also receive favorable Sec.1231 treatment when the asset was sold.

During the current year,Hugo sells equipment for $150,000.The equipment cost $175,000 when placed in service two years ago,and $55,000 of depreciation deductions were allowed.The results of the sale are

For livestock to be considered Section 1231 property,