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Exam 3: Property Dispositions

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Question 21

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Which of the following transactions results solely in §1245 gain?

A) Sale of machinery held for less than one year.
B) Sale of machinery held for more than one year and where the gain realized exceeds the accumulated depreciation.
C) Sale of machinery held for more than one year and where the accumulated depreciation exceeds the gain realized.
D) Sale of land held for more than one year and where the amount realized exceeds the adjusted basis.
E) None of these

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

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Question 22

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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: Assuming Brandon's marginal ordinary income tax rate is 35 percent, what effect do the gains and losses have on Brandon's tax liability? $\begin{array} { | l | r | r | r | } \hline \text { Asset } & \begin{array} { r } \text { Original } \\\text { Cost }\end{array} & \begin{array} { r } \text { Accumulated } \\\text { Depreciation }\end{array} & \text { Gain/Loss } \\\hline \text { Machinery } & \$ 30,000 & \$ 7,000 & \$ 10,000 \\\hline \text { Land } & 40,000 & 0 & 20,000 \\\hline \text { Building } & 90,000 & 20,000 & ( 5,000 ) \\\hline\end{array}$

A) $25,000 ordinary income, $8,750 tax liability.
B) $25,000 §1231 gain and $3,750 tax liability.
C) $13,000 §1231 gain, $12,000 ordinary income, and $6,150 tax liability.
D) $12,000 §1231 gain, $13,000 ordinary income, and $6,350 tax liability.
E) None of these

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

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Question 23

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

When does unrecaptured §1250 gains apply?

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

A parcel of land is always a capital asset. Whether an asset qualifies as a capital asset depends on the purpose for which the taxpayer uses or holds the asset.

Why does §1250 recapture generally no longer apply?

An installment sale is any sale where at least a portion of the sales proceeds is received in a subsequent taxable year.

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

After application of the look-back rule, net §1231 gains become capital while net §1231 losses become ordinary.

Which of the following is not true regarding installment sales?

Odintz traded machinery for machinery. Odintz originally purchased its machine for $150,000 and the adjusted basis was $90,000 at the time of the exchange. The machinery received was purchased for $200,000, had an adjusted basis of $155,000 at the time of the exchange, and was subject to a mortgage of $50,000 that was paid off before the transfer. What is Odintz's adjusted basis in the new machinery after the exchange?

Unrecaptured §1250 gain is taxed at a maximum rate of 25 percent.

For corporations, §291 recaptures 20 percent of the lesser of depreciation taken or the realized gain as ordinary income.

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?

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.

§1231 assets include all assets used in a trade or business. Section 1231 assets are used in a trade or business and held by taxpayers for more than one year.

Andrea sold a piece of machinery she used in her business for 9 months. The amount realized was $50,000 and the adjusted basis was $55,000. What is Andrea's gain or loss realized and what is the character of the gain or loss?

Tyson had a parcel of undeveloped investment land that he wanted to trade for a warehouse to be used in his business. He found a buyer willing to pay him $450,000 for the land. He transferred the land to a third party intermediary on April 1^st of the current year. On May 10^th, with the help of a commercial real estate agent, Tyson identified two suitable warehouses. On August 10^th he made an offer on the first building which was rejected. On August 13^th an offer was accepted on the second warehouse. On September 23^rd the third party intermediary transferred $500,000 ($450,000 from the original property plus $50,000 from Tyson) to the seller and conveyed title to the warehouse to Tyson. Explain whether the exchange of property qualifies as a like-kind exchange.

Sandra sold some equipment for $10,000 in cash, $1,000 of office products, the buyer assumption of her $1,500 loan, and incurred selling expenses of $500. What is the Sandra's amount realized in the transaction?