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Exam 10: Property Dispositions

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Question 21

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Which of the following is how gain or loss realized is calculated?

A) Cash less selling costs.
B) Cost basis less cost recovery.
C) Cash less cost recovery.
D) Amount realized less adjusted basis.
E) None of these.

F) D) and E)
G) None of the above

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Question 22

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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?

A) $25,000 ordinary and $50,000 unrecaptured §1250 gain.
B) $25,000 §1231 gain and $50,000 unrecaptured §1250 gain.
C) $75,000 ordinary gain.
D) $75,000 capital gain.
E) None of these.

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

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Question 23

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Kristi had a business building destroyed in an earthquake. The old building was purchased for $250,000 and $80,000 of depreciation deductions had been taken. Her insurance proceeds were $550,000. Although the replacement property was much larger and nicer than her old building, Kristi's new property qualified as replacement property. She acquired the new property 13 months after the earthquake for $620,000. What is the amount of Kristi's realized gain and recognized gain and the basis in her new property?

Which of the following realized gains results in a recognized gain?

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

Realized gains are recognized unless there is specific exception.

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?

Explain whether the sale of a machine used in a trade or business that is sold at a loss generates an ordinary or capital loss?

Which of the following gains does not result solely in an ordinary gain or loss?

Brandon, an individual, began business four years ago and has sold §1231 assets with $5,000 of losses within the last 5 years. Brandon owned each of the assets for several years. In the current year, Brandon sold the following business assets: $\begin{array} { | l | r | r | r | } \hline { \text { Asset } } & \text { Original Cost } & \begin{array} { r } \text { Accumulated } \\\text { Depreciation }\end{array} & \text { Gain/Loss } \\\hline \text { Machinery } & \$ 30,000 & \$ 7,000 & \$ 10,000 \\\hline \text { Land } & 40,000 & 0 & 20,000 \\\hline \text { Building } & 90,000 & 20,000 & ( 5,000 ) \\\hline\end{array}$ Assuming Brandon's marginal ordinary income tax rate is 35 percent, what effect do the gains and losses have on Brandon's tax liability?

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?

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

What is the primary purpose of a third-party intermediary in a deferred like-kind exchange?

Jessie sold a piece of land held for investment for $250,000. Jessie bought the land two years ago for $195,000. What is the amount and character of Jessie's gain?

Ordinary gains and losses are obtained on the sale of investments.

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

All tax gains and losses are ultimately characterized as either ordinary or capital.

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

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

§1231 assets include all assets used in a trade or business.