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

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Question 1

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Copper Corporation sold machinery for $47,000 on December 31,2015.The machinery had been purchased on January 2,2012,for $60,000 and had an adjusted basis of $41,000 at the date of the sale.For 2015,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 the above.

F) A) and E)
G) A) and D)

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Question 2

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Vanna owned an office building that had been held more than one year when it was sold for $567,000.The real estate had an adjusted basis of $45,000 for the land and $233,000 for the building.Straight-line depreciation of $162,000 had been taken on the building.What is the amount and initial character of the gain or loss from disposition of the real estate? Is any of the gain unrecaptured § 1250 (25%)gain?

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The real estate was used in business and...

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Question 3

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Section 1231 property includes nonpersonal use property where casualty gains exceed casualty losses for the taxable year.

Which of the following events causes the purchaser of an option to add the cost of the option to the basis of the property to which the option relates?

Orange Company had machinery destroyed by a fire on December 23,2015.The machinery had been acquired on April 1,2013,for $49,000 and its adjusted basis was $14,200.The machinery was completely destroyed and Orange received $30,000 of insurance proceeds for the machine and did not replace it.This was Orange's only casualty or theft event for the year.As a result of this event,Orange has:

The only things that the grantee of an option may do with the option are exercise it or let it expire.

Violet,Inc. ,has a 2015 $80,000 long-term capital gain included in its $285,000 taxable income.Which of the following is correct?

A personal use property casualty loss is generally deductible only to the extent it exceeds 10% of AGI.

Residential real estate was purchased in 2012 for $345,000,held as rental property,and depreciated straight-line.Assume the land cost was $45,000 and the building cost was $300,000.Depreciation totaled $34,089.The building and land were sold on June 10,2015,for $683,000 total.What is the tax status of the property,the nature of the gain from the disposition,and is any of it § 1250 depreciation recapture gain or unrecaptured § 1250 gain?

A retail building used in the business of a sole proprietor is sold on March 10,2015,for $342,000.The building was acquired in 2005 for $400,000 and straight-line depreciation of $104,000 had been taken on the building.What is the maximum unrecaptured § 1250 gain from the disposition of this building?

Since the Code section that defines "capital asset" says what is not a capital asset,other Code sections have to help determine what is and what is not a capital gain or loss.

Which of the following is correct concerning short sales of stock?

Describe the circumstances in which the potential § 1245 depreciation recapture is extinguished.

Tan,Inc. ,sold a forklift on April 12,2015,for $8,000 (its FMV) to its 100% shareholder,Ashley.Tan's adjusted basis for the forklift was $12,000.Ashley's holding period for the forklift:

Martha has both long-term and short-term 2014 capital gains and losses.The result of netting these gains and losses is a net long-term capital loss.Martha has no qualified dividend income.Also,Martha's 2014 taxable income puts her in the 28% tax bracket.Which of the following is correct?

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

A business machine purchased April 10,2014,for $62,000 was fully depreciated in 2014 using § 179 immediate expensing.On August 15,2015,the sole proprietor who owned the machine gave it to his son.On that date,the machine's fair market value was $57,000.The son did not use the machine in business or hold it as inventory and the machine was sold on November 22,2015,for $53,000.What is the amount and nature of the gain or loss from disposition of the machine? Where is it reported in the son's tax return?

Section 1245 may apply to amortizable § 197 intangible assets.

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

If § 1231 asset casualty gains and losses net to a gain,the gain is treated as a § 1231 gain.