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Exam 17: Property Transactions: 1231 and Recapture Provisions

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Question 31

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41. Copper Corporation sold machinery for $47,000 on December 31, 2014. The machinery had been purchased on January 2, 2011, for $60,000 and had an adjusted basis of $41,000 at the date of the sale. For 2014, what should Copper Corporation report?

A) Ordinary income of $6,000.
B) A § 1231 gain of $3,000 and $3,000 of ordinary income.
C) A § 1231 gain of $6,000.
D) A § 1231 gain of $6,000 and $3,000 of ordinary income.
E) None of these.

F) C) and D)
G) A) and B)

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Question 32

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Charmine,a single taxpayer with no dependents,has already incurred a $10,000 § 1231 gain in 2014 and has no § 1231 lookback losses.The taxpayer purchased a business machine for $100,000 five years ago,$70,000 of depreciation has been taken on it,and the machine is now worth $90,000.How will the net § 1231 gain or loss be affected if the taxpayer trades in the business machine for a like-kind business machine and pays an additional $12,000 in cash to obtain the replacement machine? If Charmine already has $322,000 of taxable income which does not include a $10,000 §1231 gain or any capital gains or losses,what is her taxable income?

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The current year § 1231 gain will not be...

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Question 33

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The § 1245 depreciation recapture potential does not reduce the amount of the charitable contribution deduction under § 170.

Which of the following assets held by a manufacturing business is a § 1231 asset?

If there is a net § 1231 loss,it is treated as an ordinary loss.

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?

Betty,a single taxpayer with no dependents,has the gains and losses shown below.Before considering these transactions,Betty has $45,000 of other taxable income.What is the treatment of the gains and losses and what is Betty's taxable income? $\begin{array}{lr}\S 1245 \text { gain \#1 } & \$ 18,000 \\\S 1245 \text { gain \#2 } & 5,000 \\\text { Business equipment long-term casualty loss } & (8,000) \\\text { Business real property long-term casualty gain } & 12,000 \\\S 1231 \text { gain } & 13,000 \\\S 1231 \text { lookback loss } & (2,000)\end{array}$

Section 1231 applies to the sale or exchange of business properties,but not to personal use activity casualties.

Section 1245 depreciation recapture potential does not carryover from the deceased taxpayer to the beneficiary taxpayer.

Section 1231 property generally does not include accounts receivables arising in the ordinary course of business.

Business equipment is purchased on March 10,2013,used in the business until September 29,2013,and sold at a $23,000 loss on October 10,2013.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 2013 Form 4797,Part:

A sheep must be held more than 18 months to qualify as a § 1231 asset.

Section 1231 gain that is treated as long-term capital gain carries from the 2013 Form 4797 to the 2013 Form 1040,Schedule D,line .

The maximum amount of the unrecaptured § 1250 gain (25% gain)is the depreciation taken on real property sold at a recognized gain.

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

Assume a building is subject to § 1250 depreciation recapture because § 168(k) was used to depreciate it.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 1231 lookback losses may convert some or all of § 1245 gain into ordinary income.

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:

The following assets in Jack's business were sold in 2014: $\begin{array}{lll}\text { Asset } &\text { Holding Period }&\text { Gain/(Loss) }\\\text { Office Equipment } & 6 \text { years } & \$ 1,100 \\\text { Automobile } & 8 \text { months } & (\$ 800) \\\text { ABC Stock (capital asset) } & 2 \text { years } & \$ 1,400\end{array}$ The office equipment had a zero adjusted basis and was purchased for $8,000. The automobile was purchased for $2,000 and sold for $1,200. The ABC stock was purchased for $1,800 and sold for $3,200. In 2014 (the year of sale) , Jack should report what amount of net capital gain and net ordinary income?

Spencer has an investment in two parcels of vacant land.Parcel 1 is a capital asset and parcel 2 is a § 1231 asset.Spencer already has short­term capital loss for the year he would like to offset with capital gain.Spencer has § 1231 lookback loss that exceeds the gain from the disposition of either land parcel.Spencer only wants to sell one land parcel and each of them would yield the same amount of gain.The gain that would be recognized exceeds the short- term capital loss Spencer already has.Which of the statements below is correct?