Question 1

Any gain or loss resulting from the sale or disposition of depreciable property used in trade or business and held one year or less is considered ordinary.

Accepted Answer

According to IRS rules, any gain or loss resulting from the sale or disposition of depreciable property used in trade or business and held for one year or less is considered ordinary income or loss.

Question 2

Sec.1245 applies to gains on the sale of depreciable personal property,but it generally does not apply to depreciable real property.

Accepted Answer

Sec.1245 specifically applies to depreciable personal property and not to depreciable real property.

Question 3

Unrecaptured 1250 gain is the amount of long-term capital gain which would be taxed as ordinary income if Sec.1250 provided for the recapture of all depreciation and not just additional depreciation.

Accepted Answer

Unrecaptured 1250 gain is the amount of long-term capital gain which would be taxed as ordinary income if Sec.1250 provided for the recapture of all depreciation and not just additional depreciation.

Question 4

The purpose of Sec.1245 is to eliminate the advantage taxpayers would have if they were able to reduce ordinary income by depreciation deductions and also receive favorable Sec.1231 treatment when the asset was sold.

Accepted Answer

This statement accurately reflects the purpose of Section 1245 of the Internal Revenue Code.

Question 5

Sec.1231 property must satisfy a holding period of more than one year.

Accepted Answer

Sec.1231 property refers to certain types of assets such as real estate, depreciable property, and livestock. To qualify as Sec.1231 property, the asset must be held for more than one year.

Question 6

Gains and losses resulting from condemnations of Sec.1231 property and capital assets held more than one year are classified as ordinary gains and losses.

Accepted Answer

The answer of Gains and losses resulting from condemnations of...

Question 7

When corporate and noncorporate taxpayers sell real property placed in service after 1986,all depreciation taken will be taxed at a maximum rate of 25%.

Accepted Answer

When corporate and noncorporate taxpayers sell real property placed in service after 1986, the depreciation taken will be taxed at ordinary income tax rates, which can range from 10% to 37%. There is no special maximum rate of 25%.

Question 8

Sec.1245 can increase the amount of gain recognized on an asset.

Accepted Answer

The answer of Sec.1245 can increase the amount of gain...

Question 9

Mark owns an unincorporated business and has $20,000 of Section 1231 gains and $22,000 of Section 1231 losses.He must report a capital loss of $2,000 on his tax return.

Accepted Answer

Section 1231 gains and losses are netted against each other. If losses exceed gains, the net loss is treated as an ordinary loss, not a capital loss.

Question 10

The sale of inventory results in ordinary gain or loss.

Accepted Answer

The sale of inventory is considered as part of regular business operations and thus results in ordinary gain or loss. It is not considered as a capital gain or loss.

Question 11

If the recognized losses resulting from involuntary conversions arising from casualty or theft exceed the recognized gains from such events (i.e.a net loss from the casualty),all of the involuntary conversions are treated as ordinary gains and losses.

Accepted Answer

This is a true statement according to the IRS regulations on involuntary conversions. If the recognized losses from casualty or theft exceed the recognized gains, the net loss is treated as an ordinary loss.

Question 12

Depreciable property used in a trade or business for one year or less is considered Sec.1231 property.

Accepted Answer

The answer of Depreciable property used in a trade or...

Question 13

Section 1250 could convert a portion of Sec.1231 gain into ordinary income if the real property was placed in service prior to 1987 and accelerated depreciation was used.

Accepted Answer

Section 1250 of the Internal Revenue Code provides that certain types of gains derived from the sale or exchange of depreciable real property will be treated as ordinary income rather than capital gains. This can happen if the real property was placed in service before 1987 and was subject to accelerated depreciation during its useful life. In such cases, the gain attributable to the depreciation will be treated as ordinary income, while the remaining gain will be treated as a capital gain.

Question 14

If a taxpayer has gains on Sec.1231 assets,Secs.1245 and 1250 must be applied first to determine any amounts recaptured as ordinary income,and any excess gain may then be netted with Sec.1231 losses for possible long-term capital gain treatment.

Accepted Answer

This statement is true. Secs.1245 and 1250 are used to determine if any amounts need to be recaptured as ordinary income before netting any excess gain with Sec.1231 losses for possible long-term capital gain treatment.

Question 15

If realized gain from disposition of business equipment exceeds total depreciation or cost recovery,a portion of the gain will receive Sec.1231 treatment if the equipment's holding period is more than one year.

Accepted Answer

This is true according to the rules of Sec.1231 treatment for gains from the disposition of business assets held for more than one year.

Question 16

In 2014,Thomas,who has a marginal tax rate of 15%,sells land that is Sec.1231 property at a gain of $4,000.If he has no other 1231 transactions or capital asset transactions and has no nonrecaptured 1231 gain,Thomas will pay no tax on the $4,000 gain.

Accepted Answer

According to the information given, Thomas has no other 1231 transactions or capital asset transactions and no nonrecaptured 1231 gain. Therefore, he will not have to pay any tax on the $4,000 gain from the sale of the Sec.1231 property. His marginal tax rate of 15% may not be relevant in this scenario.

Question 17

For noncorporate taxpayers,depreciation recapture is not required on real property placed in service after 1986.

Accepted Answer

Noncorporate taxpayers are allowed to take advantage of the modified accelerated cost recovery system (MACRS) for calculating depreciation on real property placed in service after 1986. Depreciation recapture, which is the inclusion of previously claimed depreciation as taxable income upon the sale of the property, is not required for noncorporate taxpayers on such properties.

Question 18

Gains and losses from involuntary conversions of property used in a trade or business generally are classified as capital gains and losses.

Accepted Answer

The answer of Gains and losses from involuntary conversions of...

Question 19

A net Sec.1231 gain is treated as ordinary income to the extent of any nonrecaptured net Sec.1231 losses for the preceding five years.

Accepted Answer

A net Sec.1231 gain is subject to special tax treatment, where it may be treated as either ordinary income or capital gain depending on the circumstances. However, if there are any nonrecaptured net Sec.1231 losses from the preceding five years, the net Sec.1231 gain is treated as ordinary income up to the amount of those losses.

Question 20

Sec.1245 ordinary income recapture can apply to buildings placed in service prior to 1987.

Accepted Answer

Sec.1245 of the Internal Revenue Code allows for ordinary income recapture on the sale of certain depreciable assets, including buildings placed in service prior to 1987. This recapture applies to any depreciation claimed on the asset and is taxed as ordinary income rather than as capital gain.

Quiz 26: Property Transactions: Section 1231 and Recapture

Any gain or loss resulting from the sale or disposition of depreciable property used in trade or business and held one year or less is considered ordinary.

Sec.1245 applies to gains on the sale of depreciable personal property,but it generally does not apply to depreciable real property.

Unrecaptured 1250 gain is the amount of long-term capital gain which would be taxed as ordinary income if Sec.1250 provided for the recapture of all depreciation and not just additional depreciation.

The purpose of Sec.1245 is to eliminate the advantage taxpayers would have if they were able to reduce ordinary income by depreciation deductions and also receive favorable Sec.1231 treatment when the asset was sold.

Sec.1231 property must satisfy a holding period of more than one year.

Gains and losses resulting from condemnations of Sec.1231 property and capital assets held more than one year are classified as ordinary gains and losses.

When corporate and noncorporate taxpayers sell real property placed in service after 1986,all depreciation taken will be taxed at a maximum rate of 25%.

Sec.1245 can increase the amount of gain recognized on an asset.

Mark owns an unincorporated business and has $20,000 of Section 1231 gains and $22,000 of Section 1231 losses.He must report a capital loss of $2,000 on his tax return.

The sale of inventory results in ordinary gain or loss.

If the recognized losses resulting from involuntary conversions arising from casualty or theft exceed the recognized gains from such events (i.e.a net loss from the casualty),all of the involuntary conversions are treated as ordinary gains and losses.

Depreciable property used in a trade or business for one year or less is considered Sec.1231 property.

Section 1250 could convert a portion of Sec.1231 gain into ordinary income if the real property was placed in service prior to 1987 and accelerated depreciation was used.

If a taxpayer has gains on Sec.1231 assets,Secs.1245 and 1250 must be applied first to determine any amounts recaptured as ordinary income,and any excess gain may then be netted with Sec.1231 losses for possible long-term capital gain treatment.

If realized gain from disposition of business equipment exceeds total depreciation or cost recovery,a portion of the gain will receive Sec.1231 treatment if the equipment's holding period is more than one year.

In 2014,Thomas,who has a marginal tax rate of 15%,sells land that is Sec.1231 property at a gain of $4,000.If he has no other 1231 transactions or capital asset transactions and has no nonrecaptured 1231 gain,Thomas will pay no tax on the $4,000 gain.

For noncorporate taxpayers,depreciation recapture is not required on real property placed in service after 1986.

Gains and losses from involuntary conversions of property used in a trade or business generally are classified as capital gains and losses.

A net Sec.1231 gain is treated as ordinary income to the extent of any nonrecaptured net Sec.1231 losses for the preceding five years.

Sec.1245 ordinary income recapture can apply to buildings placed in service prior to 1987.