Question 1

Brian purchased some equipment in 2014 which he intends to use in his trade or business. He approaches you to assist him in planning for the ultimate disposal of the asset-whether it be by sale, charitable contribution to the local university, gift to his sister for use in her business, or some other means. Discuss the tax considerations.

Accepted Answer

The answer of Brian purchased some equipment in 2014 which...

Question 2

Eric purchased a building in 2003 that he uses in his business. Eric uses the straight-line method for the building. Eric's original cost for the building is $420,000 and cost-recovery deductions are $120,000. Eric is in the top tax bracket and has never sold any other business assets. If the building is sold for $560,000, the tax results are

Accepted Answer

A) $260,000 Sec. 1231 gain, all taxable at 20%. 
B) $260,000 unrecaptured Sec. 1250 gain, all taxable at 25%. 
C) $260,000 Sec. 1231 gain, of which $120,000 is unrecaptured Sec. 1250 gain taxable at 25% and the $140,000 balance is taxable at 20%. 
D) $120,000 Sec. 1245 ordinary income, $140,000 Sec. 1231 gain taxable at 20%.

Question 3

WAM Corporation sold a warehouse during the current year for $830,000. The building had been acquired in 1989 at a cost of $730,000 and had total straight-line depreciation of $510,000.
What is the amount and nature of the gain or loss on the sale of the warehouse?

Accepted Answer

The answer of WAM Corporation sold a warehouse during the...

Question 4

Daniel recognizes $35,000 of Sec. 1231 gains and $25,000 of Sec. 1231 losses during the current year. The only other Sec. 1231 item was a $4,000 loss three years ago. This year, Daniel must report

Accepted Answer

A)   
B)   
C)   
D)

Question 5

In 2014, Thomas, who has a marginal tax rate of 15%, sells land that is Sec. 1231 property at a gain of $4,000. If he has no other 1231 transactions or capital asset transactions and has no nonrecaptured 1231 gain, Thomas will pay no tax on the $4,000 gain.

Accepted Answer

A) True 
 B)False

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

A corporation owns many acres of timber, which it acquired three years ago, and which has a $120,000 basis. The timber was cut last year for use in the corporation's business. The FMV of the timber on the first day of last year was $270,000. The corporation made the appropriate election to treat the cutting as a sale or exchange. The timber is sold for $300,000 this year. The tax result this year is

Accepted Answer

A) recognition of capital gain of $30,000. 
B) recognition of Sec. 1231 gain of $30,000. 
C) recognition of ordinary income of $30,000. 
D) no income recognized since all recognition occurs in the year of the cutting of the timber.

Question 8

Maura makes a gift of a van to a local food bank run by a charity. Maura had used the van in her trade or business. The van has a FMV of $6,500; a cost of $31,000; and $27,000 depreciation claimed. What is the amount of Maura's charitable contribution deduction?

Accepted Answer

A) $6,500 
B) $31,000 
C) $4,000 
D) $2,500

Question 9

Gain recognized on the sale or exchange of property between related parties is capital if the property is subject to depreciation in the hands of the transferee.

Accepted Answer

A) True 
 B)False

Question 10

Section 1250 could convert a portion of Sec. 1231 gain into ordinary income if the real property was placed in service prior to 1987 and accelerated depreciation was used.

Accepted Answer

A) True 
 B)False

Question 11

Jillian, whose tax rate is 39.6%, had the following sales of Section 1231 property this year:
Sale of land at a gain of $15,000
Sale of land at a gain of $12,000
Sale of land 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...

Question 12

If Section 1231 applies to the sale or exchange of an unharvested crop sold with land, the costs of producing the crop are

Accepted Answer

A) capitalized. 
B) deducted as an expense of operations when incurred and also deducted from the sales price at the time of the sale. 
C) deducted when incurred if the land is sold but capitalized if the land is exchanged. 
D) deducted as an expense of operations when incurred.

Question 13

When corporate and noncorporate taxpayers sell real property placed in service after 1986, all depreciation taken will be taxed at a maximum rate of 25%.

Accepted Answer

A) True 
 B)False

Question 14

Gains and losses resulting from condemnations of Sec. 1231 property and capital assets held more than one year are classified as ordinary gains and losses.

Accepted Answer

A) True 
 B)False

Question 15

During the current year, a corporation sells equipment for $300,000. The equipment cost $270,000 when purchased and placed in service two years ago and $60,000 of depreciation deductions were allowed. The results of the sale are

Accepted Answer

A) ordinary income of $90,000. 
B) Sec. 1231 gain of $90,000. 
C) ordinary income of $60,000 and LTCG of $30,000. 
D) ordinary income of $60,000 and Sec. 1231 gain of $30,000.

Question 16

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 17

The following gains and losses pertain to Jimmy's business assets that qualify as Sec. 1231 property. Jimmy does not have any nonrecaptured net Sec. 1231 losses from previous years, and the portion of gain recaptured as ordinary income due to the depreciation recapture provisions has been eliminated.
  Describe the specific tax treatment of each of these transactions.

Accepted Answer

The answer of The following gains and losses pertain to...

Question 18

Sec. 1245 can increase the amount of gain recognized on an asset.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Julie sells her manufacturing plant and land originally purchased in 1980. Accelerated depreciation had been taken on the building, but the building is now fully depreciated. Julie is in the 39.6% marginal tax bracket. Other information is as follows:
  She has not sold any other assets this year. A review of her file indicates that the only asset dispositions in the past five years was a truck sold for a $10,000 loss last year. What are the tax consequences of the sale (type of gain; rates at which taxed)?

Accepted Answer

The answer of Julie sells her manufacturing plant and land...

Exam 13: Property Transactions: Section 1231 and Recapture

WAM Corporation sold a warehouse during the current year for $830,000. The building had been acquired in 1989 at a cost of $730,000 and had total straight-line depreciation of $510,000. What is the amount and nature of the gain or loss on the sale of the warehouse?

Daniel recognizes $35,000 of Sec. 1231 gains and $25,000 of Sec. 1231 losses during the current year. The only other Sec. 1231 item was a $4,000 loss three years ago. This year, Daniel must report

In 2014, Thomas, who has a marginal tax rate of 15%, sells land that is Sec. 1231 property at a gain of $4,000. If he has no other 1231 transactions or capital asset transactions and has no nonrecaptured 1231 gain, Thomas will pay no tax on the $4,000 gain.

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?

Maura makes a gift of a van to a local food bank run by a charity. Maura had used the van in her trade or business. The van has a FMV of $6,500; a cost of $31,000; and $27,000 depreciation claimed. What is the amount of Maura's charitable contribution deduction?

Gain recognized on the sale or exchange of property between related parties is capital if the property is subject to depreciation in the hands of the transferee.

Section 1250 could convert a portion of Sec. 1231 gain into ordinary income if the real property was placed in service prior to 1987 and accelerated depreciation was used.

If Section 1231 applies to the sale or exchange of an unharvested crop sold with land, the costs of producing the crop are

When corporate and noncorporate taxpayers sell real property placed in service after 1986, all depreciation taken will be taxed at a maximum rate of 25%.

Gains and losses resulting from condemnations of Sec. 1231 property and capital assets held more than one year are classified as ordinary gains and losses.

During the current year, a corporation sells equipment for $300,000. The equipment cost $270,000 when purchased and placed in service two years ago and $60,000 of depreciation deductions were allowed. The results of the sale are

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

Sec. 1245 can increase the amount of gain recognized on an asset.

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.