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Exam 11: Property Dispositions

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Question 31

True/False

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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 32

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What is the character of land used in an active trade or business for two years?

A) Capital.
B) Ordinary.
C) §1231.
D) Investment.
E) None of the choices are correct.

F) B) and D)
G) C) and D)

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Question 33

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

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

Bateman Corporation sold an office building that it used in its business for $800,000.Bateman bought the building 10 years ago for $600,000 and has claimed $200,000 of depreciation expense.What is the amount and character of Bateman's gain or loss?

Gainesville LLC sold the following business assets during the current year: (1)machinery,$20,000 cost basis,$4,000 depreciation,$22,000 proceeds; (2)automobile,$15,000 cost basis,$12,000 depreciation,$7,000 proceeds; (3)equipment,$15,000 cost basis,$10,000 depreciation,$4,000 proceeds; (4)computer equipment,$35,000 cost basis,$16,000 depreciation,$15,000 proceeds; (5)Winchester had unrecaptured §1231 losses of $5,000 in the prior five years.What is the amount and character of Winchester's gains and losses before the 1231 netting process?

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

When do unrecaptured §1250 gains apply?

In the current year,Raven sold machinery with a fair market value of $200,000.The machinery's original basis was $190,000 and Raven's accumulated depreciation on the machinery was $40,000,so its adjusted basis to Raven was $150,000.Raven received $50,000 in the current year and a note paying Raven $75,000 a year for two years beginning next year.What is the amount and character of the gain that Raven will recognize in the current year?

Ordinary gains and losses are obtained on the sale of investments.

Frederique sold furniture that she uses in her business for $15,000.Frederique bought the furniture a few years ago for $40,000 and has claimed $20,000 of depreciation expense.What is the amount and character of Frederique's gain or loss?

Which of the following is not true regarding §1239?

Sumner sold equipment that it uses in its business for $30,000.Sumner bought the equipment a few years ago for $80,000 and has claimed $40,000 of depreciation expense.Assuming that this is Sumner's only disposition during the year,what is the amount and character of Sumner's gain or loss?

Unrecaptured §1250 gain is taxed at a maximum rate of 25 percent.

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

Koch traded Machine 1 for Machine 2 when the fair market value of both machines was $50,000.Koch originally purchased Machine 1 for $75,000,and Machine 1's adjusted basis was $40,000 at the time of the exchange.Machine 2's seller purchased it for $65,000 and Machine 2's adjusted basis was $55,000 at the time of the exchange.What is Koch's adjusted basis in Machine 2 after the exchange?

Which of the following gains does not result solely in an ordinary gain or loss?

Andrea sold a piece of machinery she used in her business for nine months.The amount realized was $50,000 and the adjusted basis was $55,000.What is Andrea's gain or loss realized,and what is the character of the gain or loss?

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

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