Question 1

Brandon, an individual, began business four years ago and has never sold a §1231 asset. 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?

Accepted Answer

A) $7,000 ordinary income, $1,000 §1231 loss, and $1,920 tax liability. 
B) $6,000 ordinary income and $1,920 tax liability. 
C) $7,000 §1231 gain and $2,240 tax liability. 
D) $7,000 §1231 gain and $1,050 tax liability. 
E) None of the choices are correct.

Question 2

Taxpayers can recognize a taxable gain on the sale of an asset even though an asset's real economic value has declined.

Accepted Answer

A) True 
 B)False

Question 3

A taxpayer that receives boot in a like-kind exchange resulting in a gain recognizes as gain the lesser of the fair market value of the boot received or the gain realized.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

The sale of land held for investment 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 6

Bull Run sold a computer for $1,200 on November 10 ^th of the current year. The computer was purchased for $2,800. Bull Run had taken $1,000 of depreciation deductions. What is Bull Run's gain or loss realized on the computer?

Accepted Answer

The answer of Bull Run sold a computer for $1,200...

Question 7

Which of the following is not a §1245 asset if held for more than one year?

Accepted Answer

A) Machinery. 
B) Automobile. 
C) Business cell phone. 
D) Land. 
E) None of the choices are correct.

Question 8

Sunshine LLC sold furniture for $75,000. Sunshine bought the furniture for $90,000 several years ago and has claimed $25,000 of depreciation expense on the machine. What is the amount and character of Sunshine's gain or loss?

Accepted Answer

The answer of Sunshine LLC sold furniture for $75,000. Sunshine...

Question 9

After application of the look-back rule, net §1231 gains become capital while net §1231 losses become ordinary.

Accepted Answer

A) True 
 B)False

Question 10

The gain or loss realized on the sale of an asset is the amount realized less the adjusted basis.

Accepted Answer

A) True 
 B)False

Question 11

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 12

Misha traded computer equipment used in her business to a computer dealer for some new computer equipment. Misha originally purchased the computer equipment for $15,000, and it had an adjusted basis of $11,000 at the time of the exchange.The computer equipment was worth $12,000 at the time of the exchange. Misha also received a used copier worth $2,000 in the transaction. What is Misha's realized and recognized gain/loss on the exchange?

Accepted Answer

The answer of Misha traded computer equipment used in her...

Question 13

Alpha sold machinery that it used in its business to Beta, a related entity, for $40,400. Beta used the machinery in its business. Alpha bought the machinery a few years ago for $49,600 and has claimed $30,400 of depreciation expense. What is the amount and character of Alpha's gain?

Accepted Answer

A) $21,200 ordinary income under §1239. 
B) $10,000 ordinary gain and $11,200 §1231 gain. 
C) $21,200 §1231 gain. 
D) $21,200 capital gain. 
E) None of the choices are correct.

Question 14

Foreaker LLC sold a piece of land that it uses in its business for $52,000. Foreaker bought the land two years ago for $42,500. What is the amount and character of Foreaker's gain?

Accepted Answer

A) $9,500 §1221. 
B) $9,500 §1231. 
C) $9,500 §1245. 
D) $9,500 §1250. 
E) None of the choices are correct.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

§1231 assets include all assets used in a trade or business.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following results in an ordinary gain or loss?

Accepted Answer

A) Sale of a machine at a gain. 
B) Sale of stock held for investment. 
C) Sale of a §1231 asset. 
D) Sale of inventory. 
E) None of the choices are correct.

Question 18

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 19

Residential real property is not like-kind with nonresidential real property.

Accepted Answer

A) True 
 B)False

Question 20

The adjusted basis is the initial basis less cost recovery deductions.

Accepted Answer

A) True 
 B)False

Exam 11: Property Dispositions

Taxpayers can recognize a taxable gain on the sale of an asset even though an asset's real economic value has declined.

A taxpayer that receives boot in a like-kind exchange resulting in a gain recognizes as gain the lesser of the fair market value of the boot received or the gain realized.

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

The sale of land held for investment results in which of the following types of gain or loss?

Bull Run sold a computer for $1,200 on November 10 th of the current year. The computer was purchased for $2,800. Bull Run had taken $1,000 of depreciation deductions. What is Bull Run's gain or loss realized on the computer?

Which of the following is not a §1245 asset if held for more than one year?

Sunshine LLC sold furniture for $75,000. Sunshine bought the furniture for $90,000 several years ago and has claimed $25,000 of depreciation expense on the machine. What is the amount and character of Sunshine's gain or loss?

After application of the look-back rule, net §1231 gains become capital while net §1231 losses become ordinary.

The gain or loss realized on the sale of an asset is the amount realized less the adjusted basis.

Alpha sold machinery that it used in its business to Beta, a related entity, for $40,400. Beta used the machinery in its business. Alpha bought the machinery a few years ago for $49,600 and has claimed $30,400 of depreciation expense. What is the amount and character of Alpha's gain?

Foreaker LLC sold a piece of land that it uses in its business for $52,000. Foreaker bought the land two years ago for $42,500. What is the amount and character of Foreaker's gain?

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

§1231 assets include all assets used in a trade or business.

Which of the following results in an ordinary gain or loss?

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

Residential real property is not like-kind with nonresidential real property.

The adjusted basis is the initial basis less cost recovery deductions.

Bull Run sold a computer for $1,200 on November 10 ^th of the current year. The computer was purchased for $2,800. Bull Run had taken $1,000 of depreciation deductions. What is Bull Run's gain or loss realized on the computer?