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Exam 8: Property Transactions: Capital Gains and Losses, section 1231, and Recapture Provisions

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Question 31

Multiple Choice

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Which of the following is correct?

A) Improperly classifying a § 1231 loss as a capital loss might affect adjusted gross income.
B) Improperly classifying a capital loss as a § 1231 loss might affect adjusted gross income.
C) Misclassifying a § 1231 gain as a short-term capital gain might affect adjusted gross income.
D) Misclassifying a short-term capital gain as a § 1231 gain might affect adjusted gross income.
E) All of the above.

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

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Question 32

Multiple Choice

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Vertigo,Inc. ,has a 2015 net § 1231 loss of $64,000 and had a $32,000 net § 1231 gain in 2014.For 2015,Vertigo's net § 1231 loss is treated as:

A) Ordinary loss.
B) Ordinary gain.
C) Capital loss.
D) Capital gain.
E) None of the above.

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

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Question 33

Multiple Choice

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On June 10,2015,Ebon,Inc.acquired an office building as a result of a like-kind exchange.Ebon had given up a factory building that it had owned for 26 months as part of the like-kind exchange.Which of the statements below is correct?

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?

The holding period of property given up in a like-kind exchange includes the holding period of the asset received if the property that has been exchanged is a capital asset.

Sara is filing as head of household and has 2015 taxable income of $57,000 which includes $3,000 of net long-tem capital gain.The net long-term capital gain is made up of $1,000 25% gain and $2,000 0%/15%/20% gain.What is the tax on her taxable income using the alternative tax method? Note: Use the tax rate schedule rather than the tax table.

Ryan has the following capital gains and losses for 2015: $6,000 STCL,$5,000 28% gain,$2,000 25% gain,and $6,000 0%/15%/20% gain.Which of the following is correct:

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

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

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:

A worthless security had a holding period of 6 months when it became worthless on December 10,2015.The investor who had owned the security had a basis of $20,000 for it.Which of the following statements is correct?

Blue Company sold machinery for $45,000 on December 23,2015.The machinery had been acquired on April 1,2013,for $69,000 and its adjusted basis was $34,200.The § 1231 gain,§ 1245 recapture gain,and § 1231 loss from this transaction are:

A business taxpayer sells inventory for $80,000.The adjusted basis of the property is $58,000 at the time of the sale and the inventory had been held more than one year.The taxpayer has:

The maximum § 1245 depreciation recapture generally equals the accumulated depreciation.

Stella purchased vacant land in 2008 that she subdivided for resale as lots.All 10 of the lots were sold during 2015.The lots had a tax basis of $12,000 each and sold for $35,000 each.Stella made no substantial improvements to the lots.She acted as her own real estate broker;so there were no sales expenses for selling the lots.Which of the following statements is correct?

White Company acquires a new machine for $75,000 and uses it in White's manufacturing operations.A few months after White places the machine in service,it discovers that the machine is not suitable for White's business.White had fully expensed the machine in the year of acquisition using § 179.White sells the machine for $60,000 in the tax year after it was acquired,but held the machine only for a total of 10 months.What was the tax status of the machine when it was disposed of and the amount of the gain or loss?

A business taxpayer sells depreciable business property with an adjusted basis of $40,000 for $32,000.The taxpayer held the property for more than a year.The taxpayer has an $8,000 capital loss.

Property sold to a related party purchaser that is depreciable by the purchaser may cause the seller to have ordinary gain.

Section 1250 depreciation recapture will apply when accelerated depreciation was used on property used outside the United States and the property is sold at a gain.

Hiram is a computer engineer and,while unemployed,invents a switching device for computer networks.He patents the device,but does not reduce it to practice.Hiram has a zero tax basis for the patent.In consideration of $800,000 plus a $1 royalty per device sold,Hiram assigns the patent to a computer manufacturing company.Hiram assigned all substantial rights in the patent.Which of the following is correct?