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Exam 11: Property Dispositions

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Question 21

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Why does §1250 recapture generally no longer apply?

A) Congress repealed the code section.
B) The Tax Reform Act of 1986 changed the depreciation of real property to the straight-line method.
C) §1245 recapture trumps §1250 recapture.
D) Because unrecaptured §1250 gains now apply to all taxpayers instead.
E) None of these.

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

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Question 22

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What is the character of land used in an active trade or business for two years?

A) Capital.
B) Ordinary.
C) §1231.
D) Investment.
E) None of these.

F) B) and E)
G) A) and B)

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Question 23

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Sadie sold 10 shares of stock to her brother, George, for $500 six 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?

Which of the following is true regarding disallowed losses between related taxpayers?

Luke sold land valued at $210,000. His original basis in the land was $180,000. For the land, Luke received $60,000 in cash in the current year and a note providing $150,000 in the subsequent year. What is Luke's recognized gain in the current and subsequent year, respectively?

Only accelerated depreciation is recaptured for §1245 assets.

Unrecaptured §1250 gains apply only to individuals.

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?

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

Which one of the following is not considered boot in a like-kind exchange?

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

Gainesville LLC sold the following business assets during the current year: (1) machinery, $20,000 cost basis, $4,000 depreciation, proceeds $22,000; (2) automobile, $15,000 cost basis, $12,000 depreciation, proceeds $7,000; (3) equipment, $15,000 cost basis, $10,000 depreciation, proceeds $4,000; (4) computer equipment, $35,000 cost basis, $16,000 depreciation, proceeds $15,000; (5) Winchester had unrecaptured §1231 losses of $5,000 in the prior 5 years. What is the amount and character of Winchester's gains and losses before the 1231 netting process?

Manassas purchased a computer several years ago for $2,200. On November 10^th of the current year, the computer was worth $800. If $1,000 of depreciation deductions had been taken, what is Manassas' tax adjusted basis for the computer?

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

Which of the following is true regarding depreciation recapture?

Taxpayers can recognize a taxable gain even though an asset's real economic value has declined.

Losses on sales between related parties are realized but not recognized.

Which of the following is not true regarding §1239?

Alpha sold machinery, which it used in its business, to Beta, a related entity, for $40,000. Beta used the machinery in its business. Alpha bought the equipment a few years ago for $50,000 and has claimed $30,000 of depreciation expense. What is the amount and character of Alpha's gain?

In the current year, Raven sold machinery with a fair market value of $200,000. The machinery's original basis was $190,000 and Raven's accumulated depreciation on the machinery was $40,000, so its adjusted basis to Raven was $150,000. Raven received $50,000 in the current year and a note paying Raven $75,000 a year for two years beginning in next year. What is the amount and character of the gain that Raven will recognize in the current year?