Question 1

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 2

Lucy,a noncorporate taxpayer,experienced the following Section 1231 gains and losses during the years 2009 through 2014.Her first disposition of a Sec.1231 asset occurred in 2009. Assuming Lucy had no capital gains and losses during that time period,what is the tax treatment in each of the years listed?

Accepted Answer

The answer of Lucy,a noncorporate taxpayer,experienced the following Section 1231...

Question 3

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 4

On June 1,2011,Buffalo Corporation purchased and placed in service 7-year MACRS tangible property costing $100,000.On November 10,2014,Buffalo sold the property for $102,000 after having taken MACRS $47,525 in depreciation deductions.What is the amount and character of Buffalo's gain?

Accepted Answer

The answer of On June 1,2011,Buffalo Corporation purchased and placed...

Question 5

In addition to the normal recapture rules of Sec.1250,corporations which sell depreciable real estate are subject to additional recapture rules of Sec.291.

Accepted Answer

A) True 
 B)False

Question 6

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 7

Unrecaptured 1250 gain is the amount of long-term capital gain which would be taxed as ordinary income if Sec.1250 provided for the recapture of all depreciation and not just additional depreciation.

Accepted Answer

A) True 
 B)False

Question 8

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 9

A corporation sold a warehouse during the current year.The straight-line depreciation method was used.Information about the building is presented below:  How much gain should the corporation report as section 1231 gain?

Accepted Answer

A) $124,000 
B) $620,000 
C) $586,000 
D) $710,000

Question 10

Depreciable property used in a trade or business for one year or less is considered Sec.1231 property.

Accepted Answer

A) True 
 B)False

Question 11

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 12

Sec.1231 property must satisfy a holding period of more than one year.

Accepted Answer

A) True 
 B)False

Question 13

If a taxpayer has gains on Sec.1231 assets,Secs.1245 and 1250 must be applied first to determine any amounts recaptured as ordinary income,and any excess gain may then be netted with Sec.1231 losses for possible long-term capital gain treatment.

Accepted Answer

A) True 
 B)False

Question 14

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 15

The following gains and losses pertain to Arnold's business assets that qualify as Sec.1231 property.Arnold 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 16

Marta purchased residential rental property for $600,000 on January 1,1985. Total ACRS deductions for 1985 through the date of sale amounted to $600,000.If the straight-line method of depreciation had been used,depreciation would have been $600,000.The property is sold for $750,000 on January 1 of the current year.The amount and character of the gain is

Accepted Answer

A) $750,000 Sec.1231 gain. 
B) $150,000 Sec.1231 gain and $600,000 ordinary income. 
C) $750,000 ordinary gain due to Sec 1245. 
D) $750,000 ordinary gain due to Sec.1250.

Question 17

A taxpayer purchased a factory building in 1985 for $800,000.After claiming ACRS-accelerated depreciation of $800,000,she sells the asset for $1,000,000 during the current year.No payment is received during the current year,and the $1,000,000 balance to be paid with interest at the interest rate in four annual payments beginning one year from date of sale.The installment sales method is adopted.How much ordinary income is recognized in the current year?

Accepted Answer

A) $ 0 
B) $200,000 
C) $800,000 
D) $1,000,000

Question 18

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 19

An unincorporated business sold two warehouses during the current year.The straight-line depreciation method was used for Building No.1 and the accelerated method (ACRS)was used for Building No.2.Information about those buildings is presented below.
  Accum.Depreciation
  How much gain from these sales should be reported as section 1231 gain and ordinary income due to depreciation recapture?

Accepted Answer

The answer of An unincorporated business sold two warehouses during...

Question 20

When appreciated property is transferred at death,the recapture potential carries over to the person who receives the property from the decedent.

Accepted Answer

A) True 
 B)False

Exam 26: Property Transactions: Section 1231 and Recapture

Section 1245 recapture applies to all the following except

On June 1,2011,Buffalo Corporation purchased and placed in service 7-year MACRS tangible property costing $100,000.On November 10,2014,Buffalo sold the property for $102,000 after having taken MACRS $47,525 in depreciation deductions.What is the amount and character of Buffalo's gain?

In addition to the normal recapture rules of Sec.1250,corporations which sell depreciable real estate are subject to additional recapture rules of Sec.291.

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.

Unrecaptured 1250 gain is the amount of long-term capital gain which would be taxed as ordinary income if Sec.1250 provided for the recapture of all depreciation and not just additional depreciation.

A corporation sold a warehouse during the current year.The straight-line depreciation method was used.Information about the building is presented below: How much gain should the corporation report as section 1231 gain?

Depreciable property used in a trade or business for one year or less is considered Sec.1231 property.

Sec.1231 property must satisfy a holding period of more than one year.

If a taxpayer has gains on Sec.1231 assets,Secs.1245 and 1250 must be applied first to determine any amounts recaptured as ordinary income,and any excess gain may then be netted with Sec.1231 losses for possible long-term capital gain treatment.

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%.

When appreciated property is transferred at death,the recapture potential carries over to the person who receives the property from the decedent.