Question 1

Pierce has a $16,000 Section 1231 loss,a $12,000 Section 1231 gain,and a salary of $50,000.What is the treatment of these items in Pierce's AGI?
A)Pierce has a LTCG of $12,000 and a net ordinary income of $34,000.
B)The 1231 gains and losses are treated as ordinary gains and losses making Pierce's AGI for the year $46,000.
C)Pierce has a $3,000 LTCL which is deductible for AGI making AGI $47,000.He also has a $1,000 LTCL carryover.
D)Pierce has net LTCG of $9,000 and $37,000 of net ordinary income.

Accepted Answer

Section 1231 gains and losses are treated as ordinary gains and losses, so Pierce's AGI would be $46,000 ($50,000 salary - $16,000 loss + $12,000 gain).

Question 2

Jeremy has $18,000 of Section 1231 gains and $23,000 of Section 1231 losses.The gains and losses are characterized as
A) 
B) 
C) 
D)

Accepted Answer

The answer of Jeremy has $18,000 of Section 1231 gains...

Question 3

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 4

During the current year,Danika recognizes a $30,000 Section 1231 gain and a $22,000 Section 1231 loss.Prior to this,Danika's only Section 1231 item was a $15,000 loss two years ago.Danika must report a(n)
A)$8,000 net LTCG.
B)$8,000 ordinary income.
C)$15,000 ordinary income.
D)$8,000 ordinary income and $7,000 net LTCG.

Accepted Answer

The answer of During the current year,Danika recognizes a $30,000...

Question 5

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

Accepted Answer

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

Question 6

Section 1250 does not apply to assets sold or exchanged at a loss.

Accepted Answer

Section 1250 of the Internal Revenue Code applies to the gain from the sale or exchange of depreciable real property, but not to assets sold or exchanged at a loss.

Question 7

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 8

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 9

The amount recaptured as ordinary income under either Sec.1245 or Sec.1250 can never exceed the realized gain.

Accepted Answer

This statement is true. The amount recaptured as ordinary income under either Sec. 1245 or Sec. 1250 is limited to the amount of realized gain on the sale or disposition of the property.

Question 10

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 replacement property is later sold or disposed of, the recapture potential from the original property will still be subject to taxation.

Question 11

During the current year,Kayla recognizes a $40,000 Section 1231 gain on sale of land and a $22,000 Section 1231 loss on the sale of land.Prior to this,Kayla's only Section 1231 item was a $10,000 loss six years ago.Kayla is in the 28% marginal tax bracket.The amount of tax resulting from these transactions is
A)$2,700.
B)$3,600.
C)$4,000.
D)$5,040.

Accepted Answer

The answer of During the current year,Kayla recognizes a $40,000...

Question 12

Why did Congress establish favorable treatment for 1231 assets?
A)to encourage the mobility of capital
B)to allow a larger deduction for losses
C)to help business owners replace assets which had declined in value
D)All of the above

Accepted Answer

Congress established favorable treatment for 1231 assets to encourage the mobility of capital, allow a larger deduction for losses, and help business owners replace assets which had declined in value.

Question 13

Gain recognized on the sale or exchange of property between related parties is capital if the property is subject to depreciation in the hands of the transferee.

Accepted Answer

The answer of Gain recognized on the sale or exchange...

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

If tangible personal property expensed under Sec. 179 is converted to nonbusiness use before the end of the MACRS recovery period, the amount of the expensed deduction must be recaptured as ordinary income in the year of conversion.

Question 15

Daniel recognizes $35,000 of Sec.1231 gains and $25,000 of Sec.1231 losses during the current year.The only other Sec.1231 item was a $4,000 loss three years ago.This year,Daniel must report
A) 
B) 
C) 
D)

Accepted Answer

The answer of Daniel recognizes $35,000 of Sec.1231 gains and...

Question 16

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

This statement is true. 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. Sec. 291 requires corporations to recapture a portion of any gain recognized on the sale of certain depreciable property, including real estate, as ordinary income rather than capital gain.

Question 17

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 of the Internal Revenue Code.

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

While using straight-line depreciation does generally result in less ordinary gain compared to other depreciation methods, it does not completely eliminate the possibility of ordinary gain recognition upon the sale of the asset. The gain will depend on the depreciation already claimed as well as the sale price.

Question 19

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 from installment sales of depreciable property must be recognized in the year of sale.

Question 20

During the current year,George recognizes a $30,000 Section 1231 gain on sale of land and a $18,000 Section 1231 loss on the sale of land.Prior to this,George's only Section 1231 item was a $14,000 loss six years ago.George must report a
A)$12,000 net LTCG.
B)$12,000 ordinary income.
C)$14,000 ordinary income.
D)$10,000 ordinary income and $2,000 net LTCG.

Accepted Answer

The answer of During the current year,George recognizes a $30,000...

Quiz 26: Property Transactions: Section 1231 and Recapture

Pierce has a $16,000 Section 1231 loss,a $12,000 Section 1231 gain,and a salary of $50,000.What is the treatment of these items in Pierce's AGI?

Jeremy has $18,000 of Section 1231 gains and $23,000 of Section 1231 losses.The gains and losses are characterized as