Question 1

Costs of tangible personal business property which are expensed under Sec.179 are subject to recapture if the property is converted to nonbusiness use before the end of the MACRS recovery period.

Accepted Answer

If tangible personal business property expensed under Sec.179 is converted to nonbusiness use before the end of the MACRS recovery period, the costs are subject to recapture. This means that a portion of the previously claimed depreciation expense may need to be added back to the taxpayer's income in the year of conversion.

Question 2

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

The answer of The additional recapture under Sec.291 is 25%...

Question 3

Trena LLC,a tax partnership owned equally by Trent and Nina,sells a building it had placed in service five years ago.Sec.291 will require that part of the gain (up to 20% of accumulated depreciation)be treated as ordinary gain,with the balance treated as Sec.1231 gain.

Accepted Answer

The answer of Trena LLC,a tax partnership owned equally by...

Question 4

When a donee disposes of appreciated gift property,the recapture amount for the donee is computed by including the recapture amount attributable to the donor.

Accepted Answer

The answer of When a donee disposes of appreciated gift...

Question 5

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

Accepted Answer

The answer of When appreciated property is transferred at death,the...

Question 6

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 7

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

The recapture potential of Sec.1245 or Sec.1250 property carries over to the replacement property in a nontaxable like-kind exchange where no gain is recognized. This means that if the taxpayer disposes of the replacement property, any recapture of depreciation would be triggered and taxed as ordinary income.

Question 8

Julie sells her manufacturing plant and land originally purchased in 1980.Accelerated depreciation had been taken on the building,but the building is now fully depreciated.Julie is in the 39.6% marginal tax bracket.Other information is as follows:
  She has not sold any other assets this year.A review of her file indicates that the only asset dispositions in the past five years was a truck sold for a $10,000 loss last year.What are the tax consequences of the sale (type of gain;rates at which taxed)?

Accepted Answer

The answer of Julie sells her manufacturing plant and land...

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

Accepted Answer

The corporation should report a section 1231 gain equal to the amount of the gain on the sale that is attributable to the building, which is calculated as follows:
Sale price                            $1,000,000
Less: adjusted basis            ($400,000)
Less: accumulated depreciation ($14,000 x 20) ($280,000)
Gain on sale                          $320,000
Since the building was used in a trade or business and held for over one year, this gain is treated as section 1231 gain. Therefore, the corporation should report a section 1231 gain of $320,000.

Question 10

WAM Corporation sold a warehouse during the current year for $830,000.The building had been acquired in 1991 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 11

When gain is recognized on an involuntary conversion,gain is subject to recapture under Sec.1245 or Sec.1250.

Accepted Answer

When gain is recognized on an involuntary conversion, it is subject to recapture under Sec.1245 or Sec.1250.

Question 12

Pam owns a building used in her trade or business that was placed into service in 2002.The building cost $450,000 and depreciation to date amounts to $200,000.Pam sells the building for $380,000.It is the only asset she sells this year,and she has no nonrecaptured Sec.1231 losses.What is the amount of recognized gain and the nature of the gain? How will the gain be taxed?

Accepted Answer

The answer of Pam owns a building used in her...

Question 13

Gifts of appreciated depreciable property may trigger recapture of depreciation of cost-recovery deductions to the donor as of the date of gift.

Accepted Answer

The answer of Gifts of appreciated depreciable property may trigger...

Question 14

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 $390,000;straight-line would have been $360,000.As result of the sale,how much section 1231 gain will Artima Corporation report?
A)$150,000
B)$398,000
C)$510,000
D)$540,000

Accepted Answer

To determine the section 1231 gain, we need to calculate the adjusted basis of the building first.

Adjusted basis = Original cost - accumulated depreciation
Adjusted basis = $400,000 - $390,000
Adjusted basis = $10,000

Next, we need to compare the selling price of the building to the adjusted basis. Since the selling price is higher than the adjusted basis, we have a gain.

Gain = Selling price - adjusted basis
Gain = $550,000 - $10,000
Gain = $540,000

Since this is a section 1231 asset, we need to look at the net section 1231 gain or loss for the year. This is calculated by adding up all section 1231 gains and losses for the year. Let's assume that Artima Corporation had no other section 1231 gains or losses for the year.

Net section 1231 gain = $540,000

Therefore, the correct answer is B) $398,000.

Question 15

Describe the tax treatment for a noncorporate taxpayer in the 39.6% marginal tax bracket who sells each of the first two assets for $500,000 and each of the second two assets for $750,000.Each asset was purchased in 2012 and is used in a trade or business.There are no other gains and losses and no nonrecaptured Section 1231 losses.

Accepted Answer

The answer of Describe the tax treatment for a noncorporate...

Question 16

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

Recaptured income under Secs. 1245 or 1250 must be recognized in the year of sale, even if the sale is an installment sale.

Question 17

Jesse installed solar panels in front of his office building in 2015.The panels are not attached to the building.After using the solar panels for 13 months,Jesse decided to replace them with a newer model to obtain a greater savings on electricity costs.Jesse sold the old solar panels for an amount greater than his original purchase price.What tax issues should be considered with purchase,use and sale of the original solar panels?

Accepted Answer

The answer of Jesse installed solar panels in front of...

Question 18

Octet Corporation placed a small storage building in service in 2000.Octet's original cost for the building is $800,000 and the cost recovery deductions are $300,000.This year the building is sold for $1,100,000.The amount and character of the gain are
A)Ordinary gain of $60,000 and Sec.1231 gain of $540,000.
B)Ordinary gain of $300,000 and Sec.1231 gain of $300,000.
C)Ordinary gain of $600,000.
D)Sec.1231 gain of $600,000.

Accepted Answer

The ordinary gain is the recapture of depreciation, which is $300,000. The remaining gain is a Sec. 1231 gain: $1,100,000 - $800,000 = $300,000 total gain, minus $300,000 recapture, equals $540,000 Sec. 1231 gain.

Question 19

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

Corporations that sell depreciable real estate are subject to additional recapture rules under Sec. 291 in addition to the normal recapture rules of Sec. 1250.

Question 20

Frisco Inc. ,a C corporation,placed a building in service in 2002 and deducted straight-line depreciation under the MACRS system in the normal manner.It sold the building this year for a substantial gain.Because straight-line depreciation was used,Frisco will not need to recognize any ordinary gain.

Accepted Answer

While Frisco will not need to recognize ordinary gain due to using straight-line depreciation under MACRS, it will still need to recognize a portion of the gain as depreciation recapture, which is taxed at a higher rate than ordinary gain.

Quiz 13: Property Transactions: Section 1231 and Recapture