Question 1

Brad sold a rental house that he owned for $250,000. Brad bought the rental house five years ago for $225,000 and has claimed $50,000 of depreciation expense. What is the amount and character of Brad's gain or loss?

Accepted Answer

A)  $25,000 ordinary and $50,000 unrecaptured §1250 gain. 
B)  $25,000 §1231 gain and $50,000 unrecaptured §1250 gain. 
C)  $75,000 ordinary gain. 
D)  $75,000 capital gain. 
E)  None of the choices are correct.

Question 2

Which of the following is not usually included in an asset's tax basis?

Accepted Answer

A)  Purchase price. 
B)  Sales tax. 
C)  Shipping costs. 
D)  Installation costs. 
E)  None of the choices are correct.

Question 3

How long after the initial exchange does a taxpayer have to identify replacement property in a like-kind exchange?

Accepted Answer

A)  The like-kind property to be received must be identified within 45 days. 
B)  The like-kind property to be received must be identified by the earlier of 45 days or the last day of the taxpayer's taxable year. 
C)  The like-kind property to be received must be identified within 180 days. 
D)  There is no deadline for the identification of replacement property. 
E)  All of the choices are correct.

Question 4

A simultaneous exchange must take place for a transaction to qualify as a like-kind exchange.

Accepted Answer

A) True 
 B)False

Question 5

Frederique sold furniture that she uses in her business for $15,000. Frederique bought the furniture a few years ago for $40,000 and has claimed $20,000 of depreciation expense. What is the amount and character of Frederique's gain or loss?

Accepted Answer

The answer of Frederique sold furniture that she uses in...

Question 6

Which of the following transactions results solely in §1245 gain?

Accepted Answer

A)  Sale of machinery held for less than one year. 
B)  Sale of machinery held for more than one year, where the gain realized exceeds the accumulated depreciation. 
C)  Sale of machinery held for more than one year, where the accumulated depreciation exceeds the gain realized. 
D)  Sale of land held for more than one year, where the amount realized exceeds the adjusted basis. 
E)  None of the choices are correct.

Question 7

Which of the following is not true regarding installment sales?

Accepted Answer

A)  Only gains are eligible for installment sale reporting. 
B)  Depreciation recapture is deferred in an installment sale. 
C)  The gross profit percentage is needed to determine the annual gain recognized. 
D)  Stock sales are ineligible for installment sale treatment. 
E)  None of the choices are correct.

Question 8

A net §1231 gain becomes ordinary while a net §1231 loss becomes long-term capital gain.

Accepted Answer

A) True 
 B)False

Question 9

For a like-kind exchange, realized gain is deferred if the exchange is solely for like-kind property.

Accepted Answer

A) True 
 B)False

Question 10

Brandon, an individual, began business four years ago and has sold §1231 assets with $5,000 of losses within the last five years. Brandon owned each of the assets for several years. In the current year, Brandon sold the following business assets:  Assuming Brandon's marginal ordinary income tax rate is 32 percent, what effect do the gains and losses have on Brandon's tax liability?
Use dividends and capital gains tax rates for reference.

Accepted Answer

A)  $25,000 ordinary income and $8,000 tax liability. 
B)  $25,000 §1231 gain and $3,750 tax liability. 
C)  $13,000 §1231 gain, $12,000 ordinary income, and $5,790 tax liability. 
D)  $12,000 §1231 gain, $13,000 ordinary income, and $5,960 tax liability. 
E)  None of the choices are correct.

Question 11

The sale of computer equipment used in a trade or business for nine months results in which of the following types of gain or loss?

Accepted Answer

A)  Capital. 
B)  Ordinary. 
C)  §1231. 
D)  §1245. 
E)  None of the choices are correct.

Question 12

Which one of the following is not a requirement of a deferred like-kind exchange?

Accepted Answer

A)  The like-kind property to be received must be identified within 45 days. 
B)  The exchange must be completed within the taxable year. 
C)  The like-kind property must be received within 180 days. 
D)  The exchanged property must be like-kind. 
E)  All of the choices are correct.

Question 13

Losses on sales between related parties are realized but not recognized.

Accepted Answer

A) True 
 B)False

Question 14

Peroni Corporation sold a parcel of land valued at $300,000. Its basis in the land was $250,000. For the land, Peroni received $150,000 in cash in the current year and a note providing Peroni with $150,000 in the subsequent year. What is Peroni's recognized gain in the current and subsequent year, respectively?

Accepted Answer

A)  $0, $50,000. 
B)  $10,000, $40,000. 
C)  $25,000, $25,000. 
D)  $50,000, $0. 
E)  None of the choices are correct.

Question 15

Redoubt LLC exchanged an office building used in its business for a rental house. Redoubt originally purchased the building for $80,000, and it had an adjusted basis of $53,000 at the time of the exchange. The rental house had a fair market value of $62,000. Redoubt also received $7,000 of cash in the transaction. What is Redoubt's gain or loss recognized on the exchange? What is Redoubt's basis in the rental house?

Accepted Answer

The answer of Redoubt LLC exchanged an office building used...

Question 16

Which of the following gains does not result solely in an ordinary gain or loss?

Accepted Answer

A)  Sale of equipment held for less than a year. 
B)  Sale of inventory. 
C)  Sale of equipment where the gain realized exceeds the accumulated depreciation. 
D)  Sale of equipment where the accumulated depreciation exceeds the gain realized. 
E)  None of the choices are correct.

Question 17

Ashburn reported a $105,000 net §1231 gain in Year 6. Assuming Ashburn reported $60,000 of nonrecaptured §1231 losses during Years 1-5, what amount of Ashburn's net §1231 gain for Year 6, if any, is treated as ordinary income?

Accepted Answer

A)  $0. 
B)  $45,000. 
C)  $60,000. 
D)  $105,000. 
E)  None of the choices are correct.

Question 18

Andrew, an individual, began business four years ago and has never sold a §1231 asset. Andrew owned each of the assets for several years. In the current year, Andrew sold the following business assets:
  Assuming Andrew's marginal ordinary income tax rate is 32 percent, what is the character of the gains and losses and what affect do they have on Andrew's tax liability?

Accepted Answer

The answer of Andrew, an individual, began business four years...

Question 19

For an installment sale, the gross profit percentage is the gain recognized divided by the gain realized.

Accepted Answer

A) True 
 B)False

Question 20

Sandra sold some equipment for $10,000 in cash, $1,000 of office products, the buyer's assumption of her $1,500 loan, and incurred selling expenses of $500. What is Sandra's amount realized in the transaction?

Accepted Answer

The answer of Sandra sold some equipment for $10,000 in...

Exam 3: Property Dispositions

Brad sold a rental house that he owned for $250,000. Brad bought the rental house five years ago for $225,000 and has claimed $50,000 of depreciation expense. What is the amount and character of Brad's gain or loss?

Which of the following is not usually included in an asset's tax basis?

How long after the initial exchange does a taxpayer have to identify replacement property in a like-kind exchange?

A simultaneous exchange must take place for a transaction to qualify as a like-kind exchange.

Frederique sold furniture that she uses in her business for $15,000. Frederique bought the furniture a few years ago for $40,000 and has claimed $20,000 of depreciation expense. What is the amount and character of Frederique's gain or loss?

Which of the following transactions results solely in §1245 gain?

Which of the following is not true regarding installment sales?

A net §1231 gain becomes ordinary while a net §1231 loss becomes long-term capital gain.

For a like-kind exchange, realized gain is deferred if the exchange is solely for like-kind property.

The sale of computer equipment used in a trade or business for nine months results in which of the following types of gain or loss?

Which one of the following is not a requirement of a deferred like-kind exchange?

Losses on sales between related parties are realized but not recognized.

Which of the following gains does not result solely in an ordinary gain or loss?

Ashburn reported a $105,000 net §1231 gain in Year 6. Assuming Ashburn reported $60,000 of nonrecaptured §1231 losses during Years 1-5, what amount of Ashburn's net §1231 gain for Year 6, if any, is treated as ordinary income?

For an installment sale, the gross profit percentage is the gain recognized divided by the gain realized.

Sandra sold some equipment for $10,000 in cash, $1,000 of office products, the buyer's assumption of her $1,500 loan, and incurred selling expenses of $500. What is Sandra's amount realized in the transaction?