Question 1

WAM Corporation sold a warehouse during the current year for $830,000.The building had been acquired in 1989 at a cost of $730,000 and had total straight-line depreciation of $510,000.
What is the amount and nature of the gain or loss on the sale of the warehouse?

Accepted Answer

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

Question 2

Gain recognized on the sale or exchange of property between related parties is capital if the property is subject to depreciation in the hands of the transferee.

Accepted Answer

A) True 
 B)False

Question 3

Daniel recognizes $35,000 of Sec.1231 gains and $25,000 of Sec.1231 losses during the current year.The only other Sec.1231 item was a $4,000 loss three years ago.This year,Daniel must report

Accepted Answer

A)   
B)   
C)   
D)

Question 4

During the current year,Hugo sells equipment for $150,000.The equipment cost $175,000 when placed in service two years ago,and $55,000 of depreciation deductions were allowed.The results of the sale are

Accepted Answer

A) LTCG of $30,000. 
B) Sec.1231 gain of $30,000. 
C) Sec.1245 ordinary income $30,000. 
D) Sec.1250 ordinary income of $30,000.

Question 5

If no gain is recognized in a nontaxable like-kind exchange involving Sec.1245 or Sec.1250 property,the recapture potential carries over to the replacement property.

Accepted Answer

A) True 
 B)False

Question 6

Sec.1245 applies to gains on the sale of depreciable personal property,but it generally does not apply to depreciable real property.

Accepted Answer

A) True 
 B)False

Question 7

Section 1231 property will generally have all the following characteristics except

Accepted Answer

A) real or depreciable property. 
B) used in trade or business. 
C) held for sale to customers. 
D) held for more than one year.

Question 8

Clarise bought a building three years ago for $180,000 to use in her business.The straight-line method of depreciation was used and $15,000 of depreciation deductions were allowed.During the current year,Clarise sells the building to her wholly-owned corporation for $235,000.The tax results to Clarise are

Accepted Answer

A) $70,000 ordinary income. 
B) $70,000 of Sec.1231 gain. 
C) $55,000 ordinary income and $15,000 Sec.1231 gain. 
D) $15,000 of ordinary income and $55,000 Sec.1231 gain.

Question 9

Pierce has a $16,000 Section 1231 loss,a $12,000 Section 1231 gain,and a salary of $50,000.What is the treatment of these items in Pierce's AGI?

Accepted Answer

A) Pierce has a LTCG of $12,000 and a net ordinary income of $34,000. 
B) The 1231 gains and losses are treated as ordinary gains and losses making Pierce's AGI for the year $46,000. 
C) Pierce has a $3,000 LTCL which is deductible for AGI making AGI $47,000.He also has a $1,000 LTCL carryover. 
D) Pierce has net LTCG of $9,000 and $37,000 of net ordinary income.

Question 10

Mark owns an unincorporated business and has $20,000 of Section 1231 gains and $22,000 of Section 1231 losses.He must report a capital loss of $2,000 on his tax return.

Accepted Answer

A) True 
 B)False

Question 11

A net Sec.1231 gain is treated as ordinary income to the extent of any nonrecaptured net Sec.1231 losses for the preceding five years.

Accepted Answer

A) True 
 B)False

Question 12

All of the following are considered related parties for purposes of Sec.1239 recapture with the exception of

Accepted Answer

A) an individual and a partnership where the individual has a one-fourth interest in the partnership. 
B) an individual and a corporation where the individual owns more than 50% of the value of the outstanding stock of the corporation. 
C) an individual and a corporation where the individual's spouse owns more than 50% of the value of the outstanding stock of the corporation. 
D) an individual and a partnership where the individual owns more than 50% of the capital of the partnership.

Question 13

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 14

During the current year,Danika recognizes a $30,000 Section 1231 gain and a $22,000 Section 1231 loss.Prior to this,Danika's only Section 1231 item was a $15,000 loss two years ago.Danika must report a(n)

Accepted Answer

A) $8,000 net LTCG. 
B) $8,000 ordinary income. 
C) $15,000 ordinary income. 
D) $8,000 ordinary income and $7,000 net LTCG.

Question 15

The amount recaptured as ordinary income under either Sec.1245 or Sec.1250 can never exceed the realized gain.

Accepted Answer

A) True 
 B)False

Question 16

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 17

What is the purpose of Sec.1245 and what is its significance?

Accepted Answer

The answer of What is the purpose of Sec.1245 and...

Question 18

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 19

If the recognized losses resulting from involuntary conversions arising from casualty or theft exceed the recognized gains from such events (i.e.a net loss from the casualty),all of the involuntary conversions are treated as ordinary gains and losses.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following assets is 1231 property?

Accepted Answer

A) a machine used in the company's manufacturing operations 
B) an investment in corporate stock 
C) land held for investment 
D) items held for resale by a retailer

Exam 26: Property Transactions: Section 1231 and Recapture

WAM Corporation sold a warehouse during the current year for $830,000.The building had been acquired in 1989 at a cost of $730,000 and had total straight-line depreciation of $510,000. What is the amount and nature of the gain or loss on the sale of the warehouse?

Gain recognized on the sale or exchange of property between related parties is capital if the property is subject to depreciation in the hands of the transferee.

Daniel recognizes $35,000 of Sec.1231 gains and $25,000 of Sec.1231 losses during the current year.The only other Sec.1231 item was a $4,000 loss three years ago.This year,Daniel must report

During the current year,Hugo sells equipment for $150,000.The equipment cost $175,000 when placed in service two years ago,and $55,000 of depreciation deductions were allowed.The results of the sale are

If no gain is recognized in a nontaxable like-kind exchange involving Sec.1245 or Sec.1250 property,the recapture potential carries over to the replacement property.

Sec.1245 applies to gains on the sale of depreciable personal property,but it generally does not apply to depreciable real property.

Section 1231 property will generally have all the following characteristics except

Pierce has a $16,000 Section 1231 loss,a $12,000 Section 1231 gain,and a salary of $50,000.What is the treatment of these items in Pierce's AGI?

Mark owns an unincorporated business and has $20,000 of Section 1231 gains and $22,000 of Section 1231 losses.He must report a capital loss of $2,000 on his tax return.

A net Sec.1231 gain is treated as ordinary income to the extent of any nonrecaptured net Sec.1231 losses for the preceding five years.

All of the following are considered related parties for purposes of Sec.1239 recapture with the exception of

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

During the current year,Danika recognizes a $30,000 Section 1231 gain and a $22,000 Section 1231 loss.Prior to this,Danika's only Section 1231 item was a $15,000 loss two years ago.Danika must report a(n)

The amount recaptured as ordinary income under either Sec.1245 or Sec.1250 can never exceed the realized gain.

What is the purpose of Sec.1245 and what is its significance?

If the recognized losses resulting from involuntary conversions arising from casualty or theft exceed the recognized gains from such events (i.e.a net loss from the casualty),all of the involuntary conversions are treated as ordinary gains and losses.

Which of the following assets is 1231 property?