Question 1

An individual has the following recognized gains and losses from disposition of § 1231 assets (all the assets were vacant land): $15,000 gain,$10,000 loss,$25,000 gain,and $2,000 loss.The individual has a $5,500 § 1231 lookback loss.The individual also has a $16,000 net short-term capital loss from the disposition of stock.Which of the following statements is correct?
A)The taxpayer has $5,500 ordinary gain and $6,500 net long-term capital gain.
B)The taxpayer has $12,000 net long-term capital gain.
C)The taxpayer has $28,000 ordinary gain and $16,000 net short-term capital loss.
D)The taxpayer has $5,500 ordinary loss and $6,500 net long-term capital gain.
E)None of the above.

Accepted Answer

The answer of An individual has the following recognized gains...

Question 2

Business equipment is purchased on March 10,2015,used in the business until September 29,2015,and sold at a $23,000 loss on October 10,2015.The equipment was not suitable for the work the business had purchased it for.The loss on the disposition should have been reported in the 2015 Form 4797,Part:
A)I.
B)II.
C)III.
D)IV.
E)This transaction would not be reported in the Form 4797.

Accepted Answer

According to the information given, the business equipment was held for less than a year (from March 10, 2015, to October 10, 2015) and sold at a loss. Therefore, the loss on the disposition should be reported in Part II of the 2015 Form 4797 for "Ordinary Gains and Losses." This part of the form is used to report gains and losses from the sale or exchange of property used in a trade or business or for investment purposes.

Question 3

A business taxpayer sold all the depreciable assets of the business,calculated the gains and losses,and would like to know the final character of those gains and losses.The taxpayer had $353,000 of adjusted gross income before considering the gains and losses from sale of the business assets.The taxpayer had unrecaptured § 1231 lookback loss of $12,000.What is the treatment of the gains and losses summarized in the chart below after all possible netting and reclassification has been completed? What is the taxpayer's adjusted gross income? (Ignore the self-employment tax deduction. )
Asset
Purchase Date
Sale Date
Depreciation
Gain (Loss)
Machine #1
10/10/14
11/11/16
$323,000
$66,000
Machine #2
10/02/14
11/11/16
65,000
(15,000)
Machine #3
09/23/12
11/11/16
183,000
23,000
Machine #4
09/23/12
11/11/16
28,000
64,000

Accepted Answer

The answer of A business taxpayer sold all the depreciable...

Question 4

The chart below describes the § 1231 assets sold by the Ecru Company (a sole proprietorship)this year.Compute the gain or loss from each asset disposition and determine the net § 1231 gain treated as long-term capital gain for the year.Assume there is a § 1231 lookback loss of $4,000.
Asset
Acquired
Sold
Cost
Depreciation
Sale Price
Stamping machine
3/10/12
8/10/2016
$40,000
$29,736
$32,000
Factory building
2/12/09
7/23/2016
80,000
18,838
90,000
Tractor
5/16/11
11/13/2016
52,000
52,000
30,000
Overhead crane
11/12/05
2/25/2016
74,000
74,000
18,000

Accepted Answer

The answer of The chart below describes the § 1231...

Question 5

Orange Company had machinery destroyed by a fire on December 23,2016.The machinery had been acquired on April 1,2014,for $49,000 and its adjusted basis was $14,200.The machinery was completely destroyed and Orange received $30,000 of insurance proceeds for the machine and did not replace it.This was Orange's only casualty or theft event for the year.As a result of this event,Orange has:
A)$4,200 ordinary loss.
B)$15,800 § 1245 recapture gain.
C)$14,200 § 1245 recapture gain.
D)$30,000 § 1231 gain.
E)None of the above.

Accepted Answer

The insurance proceeds exceed the adjusted basis, resulting in a gain. The gain is subject to § 1245 recapture, which is the lesser of the gain or the depreciation taken. Here, the gain is $15,800 ($30,000 - $14,200).

Question 6

An individual taxpayer has the gains and losses shown below.There are $3,000 of § 1231 lookback losses.What is the net long-term capital gain?
Holding Period/Property
Character of Gain or Loss
Amount
5 years/vacant land
§ 1231 gain
$7,000
2 years/business equipment
§ 1245 gain
3,200
3 years/publicly traded stock
Long-term capital gain
890
8 months/publicly traded stock
Short-term capital loss
(1,870)

Accepted Answer

The answer of An individual taxpayer has the gains and...

Question 7

A business taxpayer sold all the depreciable assets of the business,calculated the gains and losses,and would like to know the final character of those gains and losses.The taxpayer had $353,000 of adjusted gross income before considering the gains and losses from sale of the business assets.The taxpayer had unrecaptured § 1231 lookback loss of $22,000.What is the treatment of the gains and losses summarized in the chart below after all possible netting and reclassification has been completed? What is the taxpayer's adjusted gross income? (Ignore the self-employment tax deduction. )
Asset
Purchase Date
Sale Date
Depreciation
Gain (Loss)
Machine #1
10/10/14
11/11/16
$323,000
$66,000
Machine #2
10/02/13
11/11/16
65,000
(15,000)
Machine #3
09/23/12
11/11/16
183,000
23,000
Machine #4
09/23/12
11/11/16
28,000
34,000

Accepted Answer

The answer of A business taxpayer sold all the depreciable...

Question 8

A retail building used in the business of a sole proprietor is sold on March 10,2016,for $342,000.The building was acquired in 2006 for $400,000 and straight-line depreciation of $104,000 had been taken on the building.What is the maximum unrecaptured § 1250 gain from the disposition of this building?
A)$400,000
B)$322,000
C)$104,000
D)$26,000
E)None of the above

Accepted Answer

The answer of A retail building used in the business...

Question 9

Red Company had an involuntary conversion on December 23,2016.The machinery had been acquired on April 1,2014,for $49,000 and its adjusted basis was $14,200.The machinery was completely destroyed by fire and Red received $10,000 of insurance proceeds for the machine and did not replace it.This was Red's only casualty or theft event for the year.As a result of this event,Red initially has:
A)$10,000 § 1231 loss.
B)$10,000 § 1245 recapture gain.
C)$4,200 casualty loss.
D)$4,200 § 1231 loss.
E)None of the above.

Accepted Answer

The insurance proceeds of $10,000 represent the amount of the realized loss, and Red's adjusted basis for the machine before the casualty was $14,200. Therefore, the realized loss is $4,200 ($14,200 - $10,000). This is a casualty loss and not a § 1231 loss or a § 1245 recapture gain since there was no sale or exchange involved.

Question 10

A business machine purchased April 10,2014,for $98,000 was fully depreciated in 2014 using § 179 immediate expensing.On August 15,2016,the machine was sold for $67,000.What is the amount and nature of the gain or loss from disposition of the machine?

Accepted Answer

The answer of A business machine purchased April 10,2014,for $98,000...

Question 11

Which of the following would extinguish the § 1245 recapture potential?
A)An exchange of depreciable business equipment for like-kind business equipment with gain realized,but not recognized.
B)A nontaxable incorporation under § 351.
C)A nontaxable contribution to a partnership under § 721.
D)A nontaxable reorganization.
E)None of the above.

Accepted Answer

The answer of Which of the following would extinguish the...

Question 12

An individual has a $40,000 § 1245 gain,a $35,000 § 1231 gain,a $33,000 § 1231 loss,a $3,000 § 1231 lookback loss,and a $15,000 long-term capital gain.The net long-term capital gain is:
A)$30,000.
B)$40,000.
C)$17,000.
D)$15,000.
E)None of the above.

Accepted Answer

The answer of An individual has a $40,000 § 1245...

Question 13

The chart below describes the § 1231 assets sold by the Tan Company (a sole proprietorship)this year.Compute the gain or loss from each asset disposition and determine the net § 1231 gain treated as long-term capital gain for the year.Assume there is a § 1231 lookback loss of $14,000.
Asset
Acquired
Sold
Cost
Depreciation
Sale Price
Stamping machine
3/10/12
8/10/2016
$40,000
$29,736
$ 2,000
Factory building
2/12/09
7/23/2016
80,000
18,838
90,000
Tractor
5/16/11
11/13/2016
52,000
52,000
60,000
Overhead crane
11/12/05
2/25/2016
74,000
74,000
18,000

Accepted Answer

The answer of The chart below describes the § 1231...

Question 14

Lynne owns depreciable residential rental real estate which has accumulated depreciation (all from straight-line)of $65,000.If Lynne sold the property,she would have a $53,000 gain.The initial characterization of the gain would be:
A)Section 1245 gain.
B)Section 1231 gain.
C)Section 1250 gain.
D)Section 1239 gain.
E)None of the above.

Accepted Answer

Since the property is depreciable, the gain would first be characterized as Section 1245 gain (gain on the sale of depreciable personal property). However, since the property is residential rental real estate, the gain would then be subject to the rules of Section 1250, which generally treats depreciation as ordinary income but allows for some of the gain to be treated as long-term capital gain. Therefore, the initial characterization of the gain would be Section 1231 gain (gain on the sale of property used in a trade or business).

Question 15

Vanna owned an office building that had been held more than one year when it was sold for $567,000.The real estate had an adjusted basis of $45,000 for the land and $233,000 for the building.Straight-line depreciation of $162,000 had been taken on the building.What is the amount and initial character of the gain or loss from disposition of the real estate? Is any of the gain unrecaptured § 1250 (25%)gain?

Accepted Answer

The answer of Vanna owned an office building that had...

Question 16

Which of the following events could result in § 1250 depreciation recapture?
A)Sale at a loss of a depreciable business building held more than one year.
B)Sale at a gain of a business building held more than a year on which straight-line depreciation was taken.
C)Sale at a loss of a depreciable business building held for 9 months.
D)Sale at a gain of depreciable equipment held more than a year on which straight-line depreciation was taken.
E)None of the above.

Accepted Answer

The answer of Which of the following events could result...

Question 17

Which of the following statements is correct?
A)When depreciable property is gifted to another individual taxpayer,the depreciation recapture potential is extinguished.
B)When depreciable property is inherited by a taxpayer,the depreciation recapture potential is extinguished.
C)When corporate depreciable property is distributed as a dividend,the depreciation recapture potential is generally not recognized.
D)When depreciable property is contributed to charity,the depreciation recapture potential has no effect on the amount of the charitable contribution deduction.
E)All of the above are correct.

Accepted Answer

When depreciable property is inherited by a taxpayer, the tax basis in the property is stepped up to the fair market value at the time of inheritance. This means that any potential depreciation recapture that may have existed before the inheritance is essentially extinguished because the new basis is higher than the original basis. The other statements are not always true.

Question 18

Section 1231 gain that is treated as long-term capital gain carries from the 2015 Form 4797 to the 2015 Form 1040,Schedule D,line ____.
A)8
B)9
C)10
D)11
E)None of the above

Accepted Answer

The answer of Section 1231 gain that is treated as...

Question 19

Assume a building is subject to § 1250 depreciation recapture because § 168(k)was used.The building is destroyed in a hurricane and this is the taxpayer's only casualty or theft for the year.In which of the following situations could there be a § 1250 depreciation recapture gain?
A)There is a loss because the insurance recovery is less than the adjusted basis.
B)There is a gain because the insurance recovery exceeds the adjusted basis.
C)Because of the length of time the building has been held,there is no remaining additional depreciation.
D)There is no insurance recovery and the adjusted basis of the building is greater than zero.
E)None of the above.

Accepted Answer

If the insurance recovery exceeds the adjusted basis, there is a gain, and § 1250 depreciation recapture could apply to the extent of the additional depreciation taken.

Question 20

Section 1239 (relating to the sale of certain property between related taxpayers)does not apply unless the property:
A)Was depreciated by the transferor.
B)Is depreciable in the hands of the transferee.
C)Is a capital asset.
D)Is real property.
E)None of the above.

Accepted Answer

Section 1239 applies to the sale of property between related taxpayers if the property is depreciable in the hands of the transferee. This rule is designed to prevent related taxpayers from using sales of depreciable property to shift tax benefits from a high tax-rate taxpayer to a low tax-rate taxpayer.

Quiz 17: Property Transactions Section 1231 and Recapture Provisions

Business equipment is purchased on March 10,2015,used in the business until September 29,2015,and sold at a $23,000 loss on October 10,2015.The equipment was not suitable for the work the business had purchased it for.The loss on the disposition should have been reported in the 2015 Form 4797,Part:

A business machine purchased April 10,2014,for $98,000 was fully depreciated in 2014 using § 179 immediate expensing.On August 15,2016,the machine was sold for $67,000.What is the amount and nature of the gain or loss from disposition of the machine?

Which of the following would extinguish the § 1245 recapture potential?

An individual has a $40,000 § 1245 gain,a $35,000 § 1231 gain,a $33,000 § 1231 loss,a $3,000 § 1231 lookback loss,and a $15,000 long-term capital gain.The net long-term capital gain is:

Lynne owns depreciable residential rental real estate which has accumulated depreciation (all from straight-line) of $65,000.If Lynne sold the property,she would have a $53,000 gain.The initial characterization of the gain would be:

Which of the following events could result in § 1250 depreciation recapture?

Which of the following statements is correct?

Section 1231 gain that is treated as long-term capital gain carries from the 2015 Form 4797 to the 2015 Form 1040,Schedule D,line ____.

Assume a building is subject to § 1250 depreciation recapture because § 168(k) was used.The building is destroyed in a hurricane and this is the taxpayer's only casualty or theft for the year.In which of the following situations could there be a § 1250 depreciation recapture gain?

Section 1239 (relating to the sale of certain property between related taxpayers) does not apply unless the property: