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Exam 11: Property Dispositions

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Question 51

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The §1231 look-back rule applies whether there is a net gain or loss.

A) True
B) False

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Question 52

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For corporations, §291 recaptures 20 percent of the lesser of depreciation taken or the realized gain as ordinary income.

A) True
B) False

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Question 53

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Depreciation recapture changes both the amount and character of a gain.

Which of the following sections recaptures or recharacterizes only corporate taxpayer's gains?

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?

Winchester LLC sold the following business assets during the current year: (1) automobile, $30,000 cost basis, $12,000 depreciation, proceeds $20,000; (2) machinery, $25,000 cost basis, $20,000 depreciation, proceeds $10,000; (3) furniture, $15,000 cost basis, $10,000 depreciation, proceeds $4,000; (4) computer equipment, $25,000 cost basis, $6,000 depreciation, proceeds $10,000; (5) Winchester had unrecaptured §1231 losses of $3,000 in the prior 5 years. What is the amount and character of Winchester's gains and losses before the 1231 netting process? Assume all assets were held for more than one year.

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?

Arlington LLC exchanged land used in its business for some new land. Arlington originally purchased the land for $28,000. The new land had a fair market value of $35,000. Arlington also received $2,000 of office equipment in the transaction. What is Arlington's gain or loss recognized on the exchange?

A parcel of land is always a capital asset.

Brandon, an individual, began business four years ago and has sold §1231 assets with $5,000 of losses within the last 5 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.

Reid had a business building destroyed in a fire. The old building was purchased for $375,000 and $60,000 of depreciation deductions had been taken. Although the old building had a fair market value of $425,000 at the time of the fire, his insurance proceeds were limited to $400,000. Reid found qualified replacement property which he acquired six months later for $390,000. What is the amount of Reid's realized gain and recognized gain?

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

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

§1239 recharacterizes 50 percent of the gain on sales to a related party as ordinary income.

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

Assets held for investment and personal use assets are examples of capital assets.

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

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

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

Which of the following is not an involuntary conversion?