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Exam 10: Property Dispositions

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Question 51

True/False

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§1250 recaptures the excess of accelerated depreciation over straight line depreciation on real property placed in service between 1981 and 1986 as ordinary income.

A) True
B) False

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Question 52

Multiple Choice

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Why does §1250 recapture generally no longer apply?

A) Congress repealed the code section.
B) The Tax Reform Act of 1986 changed the depreciation of real property to the straight-line method.
C) §1245 recapture trumps §1250 recapture.
D) Because unrecaptured §1250 gains now apply to all taxpayers instead.
E) None of these.

F) None of the above
G) B) and D)

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Question 53

Multiple Choice

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The general rule regarding the exchanged basis in a like-kind exchange is:

Brad sold a rental house that he owned for $250,000. Brad bought the rental house five years ago for $225,000 and has claimed $50,000 of depreciation expense. What is the amount and character of Brad's gain or loss?

Alexandra sold equipment that she uses in her business for $100,000. Alexandra bought the equipment two years ago for $90,000 and has claimed $25,000 of depreciation expense. What is the amount and character of Alexandra's gain or loss?

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

Accounts receivable and inventory are examples of ordinary assets.

In a deferred like-kind exchange the like-kind property to be received must be identified within 45 days and acquired within 180 days from the initial exchange.

For an installment sale, the gross profit percentage is the gain recognized divided by the gain realized.

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?

Generally, the amount realized is everything of value received in a sale less selling expenses.

Each of the following is true except for:

Alpha sold machinery, which it used in its business, to Beta, a related entity, for $40,000. Beta used the machinery in its business. Alpha bought the equipment a few years ago for $50,000 and has claimed $30,000 of depreciation expense. What is the amount and character of Alpha's gain?

Andrea sold a piece of machinery she used in her business for 9 months. The amount realized was $50,000 and the adjusted basis was $55,000. What is Andrea's gain or loss realized and what is the character of the gain or loss?

The sale of machinery at a loss that was used in a trade or business and held for more than one year results in the following type of loss?

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

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: $\begin{array} { | l | r | r | r | } \hline { \text { Asset } } & \text { Original Cost } & \begin{array} { r } \text { Accumulated } \\\text { Depreciation }\end{array} & \text { Gain/Loss } \\\hline \text { Machinery } & \$ 30,000 & \$ 7,000 & \$ 10,000 \\\hline \text { Computers } & 10,000 & 6,000 & ( 2,000 ) \\\hline \text { Building } & 90,000 & 20,000 & ( 2,000 ) \\\hline\end{array}$ Assuming Brandon's marginal ordinary income tax rate is 35 percent, what effect do the gains and losses have on Brandon's tax liability?

Which one of the following is not true regarding a like-kind exchange?

Buzz Corporation sold an office building that it used in its business for $500,000. Buzz bought the building ten 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?

Sadie sold 10 shares of stock to her brother, George, for $500 six months ago. Sadie had purchased the stock for $600 two years earlier. If George sells the stock for $700, what is the amount and character of his recognized gain or loss in the current year?