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Exam 11: Property Dispositions

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Question 61

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Ashburn reported a $105,000 net §1231 gain in Year 6. Assuming Ashburn reported $60,000 of nonrecaptured §1231 losses during Years 1 to 5, what amount of Ashburn's net §1231 gain for Year 6, if any, is treated as ordinary income?

A) $0.
B) $45,000.
C) $60,000.
D) $105,000.
E) None of the choices are correct.

F) A) and E)
G) A) and C)

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Question 62

Multiple Choice

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Bateman Corporation sold an office building that it used in its business for $800,000. Bateman bought the building 10 years ago for $600,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Bateman's gain or loss?

A) $40,000 ordinary and $360,000 §1231 gain.
B) $200,000 ordinary and $200,000 §1231 gain.
C) $400,000 ordinary gain.
D) $400,000 capital gain.
E) None of the choices are correct.

F) All of the above
G) A) and B)

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Question 63

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An asset's tax-adjusted basis is usually greater than its book-adjusted basis.

Assets held for investment and personal use assets are examples of capital assets.

The sale of land held for investment results in which of the following types of gain or loss?

Reid had a business building destroyed in a fire. The old building was purchased for $375,000, and $60,000 of depreciation deductions had been taken. Although the old building had a fair market value of $425,000 at the time of the fire, his insurance proceeds were limited to $400,000. Reid found qualified replacement property that he acquired six months later for $390,000. What is the amount of Reid's realized gain and recognized gain?

Each of the following is true except for:

Koch traded Machine 1 for Machine 2 when the fair market value of both machines was $49,550. Koch originally purchased Machine 1 for $75,900, and Machine 1's adjusted basis was $40,450 at the time of the exchange. Machine 2's seller purchased it for $64,550 and Machine 2's adjusted basis was $55,450 at the time of the exchange. What is Koch's adjusted basis in machine 2 after the exchange?

Brandon, an individual, began business four years ago and has never sold a §1231 asset. Brandon owned each of the assets for several years. In the current year, Brandon sold the following business assets: Assuming Brandon's marginal ordinary income tax rate is 32 percent, what effect do the gains and losses have on Brandon's tax liability?

Manassas purchased a computer several years ago for $2,850. On November 10^th of the current year, the computer was worth $ 930. If $1,130 of depreciation deductions had been taken, what is Manassas's tax-adjusted basis for the computer?

Realized gains are recognized unless there is specific exception.

Manassas purchased a computer several years ago for $2,200. On November 10 ^th of the current year, the computer was worth $800. If $1,000 of depreciation deductions had been taken, what is Manassas's tax-adjusted basis for the computer?

Andrew, an individual, began business four years ago and has never sold a §1231 asset. Andrew owned each of the assets for several years. In the current year, Andrew sold the following business assets: Assuming Andrew's marginal ordinary income tax rate is 32 percent, what is the character of the gains and losses and what affect do they have on Andrew's tax liability?

Kristi had a business building destroyed in an earthquake. The old building was purchased for $250,000, and $80,000 of depreciation deductions had been taken. Her insurance proceeds were $550,000. Although the replacement property was much larger and nicer than her old building, Kristi's new property qualified as replacement property. She acquired the new property 13 months after the earthquake for $620,000. What is the amount of Kristi's realized gain and recognized gain and the basis in her new property?

Alpha sold machinery that it used in its business to Beta, a related entity, for $39,500. Beta used the machinery in its business. Alpha bought the machinery a few years ago for $50,500 and has claimed $29,500 of depreciation expense. What is the amount and character of Alpha's gain?

Brandon, an individual, began business four years ago and has sold §1231 assets with $5,100 of losses within the last five years. Brandon owned each of the assets for several years. In the current year, Brandon sold the following business assets: Assuming Brandon's marginal ordinary income tax rate is 32 percent, what effect do the gains and losses have on Brandon's tax liability? Use dividends and capital gains tax rates for reference.

Buzz Corporation sold an office building that it used in its business for $500,000. Buzz bought the building 10 years ago for $650,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Buzz's gain or loss?

Brandy sold a rental house that she owned for $150,000. Brandy bought the house four years ago for $140,000 and has claimed $25,000 of depreciation expense. What is the amount and character of Brandy's gain or loss?

The sale for more than the original cost basis (before depreciation) of machinery used in a trade or business and held for more than one year results in which of the following types of gain or loss?

Sumner sold equipment that it uses in its business for $30,000. Sumner bought the equipment a few years ago for $80,000 and has claimed $40,000 of depreciation expense. Assuming that this is Sumner's only disposition during the year, what is the amount and character of Sumner's gain or loss?