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Exam 3: Property Dispositions

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Question 51

Multiple Choice

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Bozeman sold equipment that it uses in its business for $80,000.Bozeman bought the equipment two years ago for $75,000 and has claimed $20,000 of depreciation expense.What is the amount and character of Bozeman's gain or loss?

A) $25,000 §1231 gain.
B) $20,000 ordinary gain, and $5,000 §1231 gain.
C) $5,000 ordinary gain, and $20,000 §1231 gain.
D) $25,000 capital gain.
E) None of the choices are correct.

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

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Question 52

Multiple Choice

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

A) $0.
B) $100 short-term capital gain.
C) $100 long-term capital gain.
D) $200 short-term capital gain.
E) None of the choices are correct.

F) All of the above
G) B) and E)

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Question 53

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

Each of the following is true except for:

§1239 recharacterizes 50 percent of the gain on sales to a related party as ordinary income.

A loss realized for property destroyed in a hurricane is deferred under the involuntary conversion rules.

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

Winchester LLC sold the following business assets during the current year: (1) automobile,$30,000 cost basis,$12,000 depreciation,proceeds $20,000; (2) machinery,$25,000 cost basis,$20,000 depreciation,proceeds $10,000; (3) furniture,$15,000 cost basis,$10,000 depreciation,proceeds $4,000; (4) computer equipment,$25,000 cost basis,$6,000 depreciation,proceeds $10,000; (5) Winchester had unrecaptured §1231 losses of $3,000 in the prior 5 years.What is the amount and character of Winchester's gains and losses before the 1231 netting process? Assume all assets were held for more than one year.

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

A taxpayer that receives boot in a like-kind exchange resulting in a gain recognizes as gain the lesser of the fair market value of the boot received or the gain realized.

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?

An asset's tax-adjusted basis is usually greater than its book-adjusted basis.

Brandy sold a rental house that she owned for $150,000.Brandy bought the house four years ago for $140,000 and has claimed $25,000 of depreciation expense.What is the amount and character of Brandy's gain or 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: 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 of the following does NOT ultimately result in a capital gain or loss?

Andrew,an individual,began business four years ago and has never sold a §1231 asset.Andrew owned each of the assets for several years.In the current year,Andrew sold the following business assets: Assuming Andrew's marginal ordinary income tax rate is 30 percent,what is the character of the gains and losses and what affect do they have on Andrew's tax liability?

Pelosi Corporation sold a parcel of land valued at $300,000.Its basis in the land was $250,000.For the land,Pelosi received $150,000 in cash in the current year and a note providing Pelosi with $150,000 in the subsequent year.What is Pelosi's recognized gain in the current and subsequent year,respectively?

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

Which of the following is NOT used in the calculation of the amount realized?