Question 1

In 1980, Mr. Lyle purchased a factory building to use in business for $480,000. When Mr. Lyle sells the building for $580,000, he has taken depreciation of $470,000. Straight-line depreciation would have been $400,000. Mr. Lyle must report

Accepted Answer

A)  $570,000 of ordinary gain. 
B)  $570,000 of Sec. 1231 gain. 
C)  $70,000 of ordinary income and $500,000 of Sec. 1231 gain. 
D)  $470,000 of ordinary gain and $100,000 of Sec. 1231 gain.

Question 2

An individual taxpayer sells a business building placed in service five years ago and recognizes a gain. This is the taxpayer's first and only sale of Sec. 1231 property. Since the gain will be treated as LTCG, the details of the sale should be reported on Schedule D of Form 1040.

Accepted Answer

A) True 
 B)False

Question 3

Emily, whose tax rate is 28%, owns an office building which she purchased for $900,000 on March 18 of last year. The building is sold for $950,000 on February 20 of this year when the adjusted basis of the building was $876,000. The tax results to Emily are

Accepted Answer

A)  $74,000 1231 gain taxed at 15%. 
B)  $74,000 ordinary income taxed at 28%. 
C)  $24,000 1250 unrecaptured gain taxed at 25% and $50,000 1231 gain taxed at 15%. 
D)  $24,000 1231 gain taxed at 15% and $50,000 ordinary income taxed at 28%.

Question 4

Cobra Inc. sold stock for a $25,000 loss five years ago. It has been carrying over the capital loss for five years, and the loss will expire at the end of this year because Cobra has not had any capital gains. Earlier this year Cobra sold a parcel of land held four years for business use and will recognize a $30,000 gain. Cobra is thinking about selling some machinery used in its business for the past three years. During this time technology has dramatically changed so Cobra will recognize a $32,000 loss on the sale of the machinery. Cobra is trying to decide whether to sell the machinery at year-end or early next year. Cobra is profitable and has a consistent marginal tax rate of 35%. When should Cobra sell the equipment?

Accepted Answer

A)  current year 
B)  early next year 
C)  current year, but arrange an installment sale to spread the loss recognition over the two years 
D)  either the current year or next year

Question 5

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 6

Douglas bought office furniture two years and four months ago for $25,000 to use in his business and elected to expense all of it under Sec. 179. Depreciation of $3,500 would have been taken under the MACRS rules. If Douglas converts the furniture to nonbusiness use today, Douglas must

Accepted Answer

A)  amend the prior two years tax returns. 
B)  include $3,500 in gross income in year of conversion. 
C)  include $21,500 in gross income in year of conversion. 
D)  include $25,000 in gross income in year of conversion.

Question 7

Echo Corporation plans to sell a small building to Nate, its 65% shareholder. The building was placed in service five years ago. An independent appraisal will be obtained to set the selling price at an appropriate market price, and a $50,000 gain is expected to result. The only asset previously sold by Echo was a stock investment five years ago which resulted in a $40,000 loss. If the sale of the building closes before year-end, the gain on the building will allow recognition of the capital loss carryover before it expires.

Accepted Answer

A) True 
 B)False

Question 8

Ross purchased a building in 1985, which he uses in his manufacturing business. Ross uses the ACRS statutory rates to determine the cost-recovery deduction for the building. Ross's original cost for the building is $500,000 and cost-recovery deductions allowed are $500,000. If the building is sold for $340,000, the tax results to Ross are

Accepted Answer

A)  $340,000 LTCG. 
B)  $340,000 Sec. 1231 gain. 
C)  $340,000 Sec. 1245 ordinary income. 
D)  $340,000 Sec. 1250 ordinary income.

Question 9

Installment sales of depreciable property which result in recaptured income under Secs. 1245 or 1250 require that the recaptured income be recognized in the year of sale.

Accepted Answer

A) True 
 B)False

Exam 13: Property Transactions: Section 1231 and Recapture

In 1980, Mr. Lyle purchased a factory building to use in business for $480,000. When Mr. Lyle sells the building for $580,000, he has taken depreciation of $470,000. Straight-line depreciation would have been $400,000. Mr. Lyle must report

An individual taxpayer sells a business building placed in service five years ago and recognizes a gain. This is the taxpayer's first and only sale of Sec. 1231 property. Since the gain will be treated as LTCG, the details of the sale should be reported on Schedule D of Form 1040.

Emily, whose tax rate is 28%, owns an office building which she purchased for $900,000 on March 18 of last year. The building is sold for $950,000 on February 20 of this year when the adjusted basis of the building was $876,000. The tax results to Emily are

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?

Douglas bought office furniture two years and four months ago for $25,000 to use in his business and elected to expense all of it under Sec. 179. Depreciation of $3,500 would have been taken under the MACRS rules. If Douglas converts the furniture to nonbusiness use today, Douglas must

Installment sales of depreciable property which result in recaptured income under Secs. 1245 or 1250 require that the recaptured income be recognized in the year of sale.