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Exam 3: Property Dispositions

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Question 31

True/False

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Depreciation recapture changes both the amount and character of a gain. Depreciation recapture changes the character of the gain, not the amount.

A) True
B) False

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Question 32

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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 35 percent, what effect do the gains and losses have on Brandon's tax liability? $\begin{array} { | l | r | r | r | } \hline \text { Asset } & \begin{array} { r } \text { Origina } \\\text { Cost }\end{array} & \begin{array} { r } \text { Accumulated } \\\text { Depreciation }\end{array} & \text { GainLoss } \\\hline \text { Machinery } & \$ 30,000 & \$ 7,000 & \$ 10,000 \\\hline \text { Computers } & 10,000 & 6,000 & ( 2,000 ) \\\hline \text { Building } & 90,000 & 20,000 & ( 2,000 ) \\\hline\end{array}$

A) $7,000 ordinary income, $1,000 §1231 loss and $2,100 tax liability.
B) $6,000 ordinary income and $2,100 tax liability.
C) $7,000 §1231 gain and $2,450 tax liability.
D) $7,000 §1231 gain and $1,050 tax liability.
E) None of these

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

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Question 33

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

Arlington LLC traded machinery used in its business to a machinery dealer for some new machinery. Arlington originally purchased the machinery for $60,000 and it had an adjusted basis of $28,000 at the time of the exchange. The new machinery had a fair market value of $35,000. Arlington also received $2,000 of office equipment in the transaction. What is Arlington's gain or loss recognized on the exchange?

Which of the following is not an involuntary conversion?

Which of the following is not a §1245 asset if held for more than one year?

Realized gains are recognized unless there is specific exception.

For a like-kind exchange, realized gain is deferred if the exchange is solely for like-kind property.

Redoubt LLC traded machinery used in its business to a machinery dealer for some new machinery. Redoubt originally purchased the machinery for $80,000 and it had an adjusted basis of $53,000 at the time of the exchange. The new machinery had a fair market value of $62,000. Redoubt also received $7,000 of computer equipment in the transaction. What is Redoubt's gain or loss recognized on the exchange?

Foreaker LLC sold a piece of land that it uses in its business for $52,000. Foreaker bought the land two years ago for $42,500. What is the amount and character of Foreaker's gain?

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 which he acquired six months later for $390,000. What is the amount of Reid's realized gain and recognized gain?

A simultaneous exchange must take place for a transaction to qualify as a like-kind exchange.

The gain or loss realized on the sale of an asset is the amount realized less the adjusted basis.

The sale of computer equipment used in a trade or business for 9 months results in the following type of gain or loss?

Which one of the following is not a requirement of a deferred like-kind exchange?

A net §1231 gain becomes ordinary while a net §1231 loss becomes long-term capital gain.

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

Which of the following may qualify as an installment sale?

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?

Sunshine LLC sold furniture for $75,000. Sunshine bought the furniture for $90,000 several years ago and has claimed $25,000 of depreciation expense on the machine. What is the amount and character of Sunshine's gain or loss?