Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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 3

For noncorporate taxpayers,depreciation recapture is not required on real property placed in service after 1986.

Accepted Answer

A) True 
 B)False

Question 4

A corporation owns many acres of timber,which it acquired three years ago,and which has a $150,000 basis for depletion.The timber is cut during the current year for use in the corporation's business.The FMV of the timber on the first day of the current year is $280,000.If the corporation makes the appropriate election,the tax result is

Accepted Answer

A) recognition of a Sec.1231 gain of $130,000. 
B) no recognition of gain or loss since the timber is used in the business. 
C) recognition of a gain at the time of sale if the timber is later sold with the gain equal to the sales price less the basis in the timber. 
D) recognition of a gain if the timber is later sold with the gain equal to the sales price less $280,000 (FMV on the first day of the year of the cutting).

Question 5

Gains and losses from involuntary conversions of property used in a trade or business generally are classified as capital gains and losses.

Accepted Answer

A) True 
 B)False

Question 6

In 1980,Artima Corporation purchased an office building for $400,000 for use in its business.The building is sold during the current year for $550,000.Total depreciation allowed for the building was $350,000; straight-line would have been $320,000.As result of the sale,how much section 1231 gain will Artima Corporation report?

Accepted Answer

A) $350,000 
B) $406,000 
C) $320,000 
D) $500,000

Question 7

Section 1245 recapture applies to all the following except

Accepted Answer

A) depreciable personal property. 
B) assets sold or exchanged at a loss. 
C) total depreciation or amortization allowed or allowable. 
D) amortizable intangible personal property.

Question 8

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

Question 9

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 the following...

Question 10

Millicent makes a gift of an organ to a church.Millicent uses the organ in her trade or business.The organ has a FMV of $6,500; a cost of $11,000; and $7,000 depreciation claimed.What is the amount of Millicent's charitable contribution deduction?

Accepted Answer

A) $2,500 
B) $4,000 
C) $6,500 
D) 11,000

Question 11

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 12

Connors Corporation sold a warehouse during the current year for $980,000.The building had been acquired in 1980 at a cost of $830,000.The building is fully depreciated.
What is the amount and nature of the gain or loss on the sale of the warehouse?

Accepted Answer

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

Question 13

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 14

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 15

An unincorporated business sold two warehouses during the current year.The straight-line depreciation method was used for the first building and the accelerated method (ACRS)was used for the second building.Information about those buildings is presented below.  How much gain from these sales should be reported as section 1231 gain and ordinary income due to depreciation recapture by the owner of the business?

Accepted Answer

A)   
B)   
C)   
D)

Question 16

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 17

Cassie owns equipment ($45,000 basis and $30,000 FMV)and a building ($152,000 basis and $158,000 FMV),which are used in Cassie's business.Cassie has used straight-line depreciation for both assets,which were acquired two years ago.Both the equipment and the building are destroyed in a fire,and Cassie collects insurance proceeds equal to the assets' FMV.The tax result to Cassie for this transaction is a

Accepted Answer

A) $15,000 Sec.1231 loss and a $6,000 ordinary gain. 
B) $15,000 ordinary loss and a $6,000 ordinary gain. 
C) $15,000 ordinary loss and a $6,000 Sec.1231 gain. 
D) $15,000 Sec.1231 loss and a $6,000 Sec.1231 gain.

Question 18

Indicate whether each of the following assets are capital assets,Sec.1231 assets,or ordinary income property (property which,if sold,results in ordinary income).Assume that all of the property is held for more than one year.
a.XYZ Corporation owns land used as an employee parking lot.How is the parking lot classified for tax purposes?
b.Montana Corporation owns land held as an investment.How is the land classified for tax purposes?
c.John,a self-employed electrician,owns an automobile he uses strictly for personal use.How is the automobile classified for tax purposes?
d.Jan,a self-employed contractor,owns a truck she uses exclusively in her trade or business.How is the truck classified for tax purposes?
e.Leslie owns an office building where her accounting practice is located.What is the classification of the building?
f.Yvonne purchases a computer for use in her job as a sales representative.She does not use the computer for personal purposes.How is the computer classified for tax purposes?

Accepted Answer

The answer of Indicate whether each of the following assets...

Question 19

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 20

The additional recapture under Sec.291 is 25% of the difference between the amount that would have been recaptured if the property was Sec.1245 property and the actual recapture under Sec.1250.

Accepted Answer

A) True 
 B)False

Exam 13: Property Transactions: Section 1231 and Recapture

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

For noncorporate taxpayers,depreciation recapture is not required on real property placed in service after 1986.

Gains and losses from involuntary conversions of property used in a trade or business generally are classified as capital gains and losses.

Section 1245 recapture applies to all the following except

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.

Millicent makes a gift of an organ to a church.Millicent uses the organ in her trade or business.The organ has a FMV of $6,500; a cost of $11,000; and $7,000 depreciation claimed.What is the amount of Millicent's charitable contribution deduction?

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.

Connors Corporation sold a warehouse during the current year for $980,000.The building had been acquired in 1980 at a cost of $830,000.The building is fully depreciated. What is the amount and nature of the gain or loss on the sale of the warehouse?

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

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

The additional recapture under Sec.291 is 25% of the difference between the amount that would have been recaptured if the property was Sec.1245 property and the actual recapture under Sec.1250.