Question 1

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

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Question 2

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.
 $\begin{array}{lll}
&\text {Original Basis}&\text {Adjusted Basis}\
\text { Land } & \$ 350,000 & \$ 350,000 \
\text { Equipment 1 } & \$ 600,000 & \$ 450,000 \
\text { Equipment 2 } & \$ 600,000 & \$ 500,000 \
\text { Building } & \$ 550,000 & \$ 450,000
\end{array}$

Accepted Answer

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

Question 3

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 4

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 (potential for depreciation recapture) does indeed carry over to the replacement property in a nontaxable like-kind exchange involving Sec. 1245 or Sec. 1250 property. This means that if the taxpayer later sells the replacement property for a gain, they may owe depreciation recapture tax on the portion of the gain that represents depreciation taken on the original property.

Question 5

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 calculate the section 1231 gain, we first need to calculate the adjusted basis of the building. Adjusted basis = original cost - accumulated depreciation = $400,000 - $390,000 = $10,000.

Since the sale price of $550,000 is greater than the adjusted basis of $10,000, we have a gain of $540,000. This gain is a section 1231 gain since it is related to the sale of a business asset.

Therefore, the section 1231 gain that Artima Corporation will report is $540,000.

Question 6

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

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Question 7

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 both the normal recapture rules of Sec. 1250 and the additional recapture rules of Sec. 291.

Question 8

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

When a donee disposes of appreciated gift property, the recapture amount for the donee is computed by adding together the donee's own recapture amount and the donor's recapture amount. This combined recapture amount is included in the donee's income.

Question 9

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 answer of Octet Corporation placed a small storage building...

Question 10

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

Accepted Answer

When a gain is recognized on an involuntary conversion, it is subject to recapture under either Sec. 1245 or Sec. 1250. This is because the gain is considered to be attributable to depreciation or amortization and therefore must be recaptured as ordinary income.

Question 11

A corporation sold a warehouse during the current year. The straight-line depreciation method was used. Information about the building is presented below: $$\begin{array} { | l | r | } 
\hline \text { Date acquired } & 1984 \
\hline \text { Cost } & \$ 800,000 \
\hline \text { Accumulated Depreciation - Straight-line } & 620,000 \
\hline \text { Selling Price } & 890,000 \
\hline
\end{array}$$ 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

To calculate the section 1231 gain, we need to first calculate the Adjusted Basis, which is the original cost minus accumulated depreciation. The original cost is given as $1,000,000 and the accumulated depreciation is $414,000 ($69,000 x 6 years). Therefore, the Adjusted Basis is $586,000. The sale price is given as $1,296,000, so the amount realized is $710,000 ($1,296,000 - $586,000). Since the building was held for more than one year and is classified as section 1231 property, we can use the formula: Section 1231 Gain = Recognized Gain on Sale - Depreciation Recapture. The depreciation recapture is the total accumulated depreciation, which is $414,000. Therefore, the recognized gain on sale is $296,000 ($710,000 - $414,000) and the section 1231 gain is also $296,000.

Question 12

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

Accepted Answer

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Question 13

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

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Question 14

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

The statement is true. This is known as recapture of Section 179 expense. If tangible personal business property is expensed under Section 179 and is later converted to nonbusiness use before the end of the MACRS recovery period, the taxpayer must add back the amount of the Section 179 expense deduction to their taxable income in the year of conversion. This is known as recapture.

Question 15

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

When depreciable property is sold through installment sales and results in recaptured income under Internal Revenue Code Sections 1245 or 1250, the recaptured income must be recognized in the year of sale. This is because the gain from the sale is treated as ordinary income rather than capital gain, and the recapture rules require that the previously claimed depreciation be recaptured and taxed at ordinary income rates.

Question 16

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

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Question 17

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

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Question 18

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

When a C corporation sells a property for a gain, any depreciation recapture must be recognized as ordinary income. Even if the corporation used straight-line depreciation, it will still need to recognize a portion of the gain as ordinary income.

Question 19

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 20

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...

Quiz 28: Property Transactions: Section 1231 and Recapture