Question 1

Unrecaptured 1250 gain is the amount of long-term capital gain which would be taxed as ordinary income if Sec.1250 provided for the recapture of all depreciation and not just additional depreciation.

Accepted Answer

Unrecaptured 1250 gain is the amount of long-term capital gain which would be taxed as ordinary income if Sec.1250 provided for the recapture of all depreciation and not just additional depreciation.

Question 2

Sec.1245 can increase the amount of gain recognized on an asset.

Accepted Answer

The answer of Sec.1245 can increase the amount of gain...

Question 3

Sec.1245 ordinary income recapture can apply to buildings placed in service prior to 1987.

Accepted Answer

Sec.1245 applies to all types of property, including buildings, and does not have a placed-in-service requirement. Therefore, it can apply to buildings placed in service prior to 1987.

Question 4

With respect to residential rental property
A)80% or more of the gross rental income from the building or structure must be rental income from dwelling units in order for it to be classified as residential rental property.
B)hotels are not included in this category if less than half of the units are used on a transient basis.
C)80% or more of the net rental income from the building or structure must be rental income from dwelling units in order for it to be classified as residential rental property.
D)gain is not subject to the depreciation recapture provisions if the property is held more than one year.

Accepted Answer

According to IRS regulations, for a building or structure to be classified as residential rental property, 80% or more of the gross rental income must be rental income from dwelling units.

Question 5

Terry has sold equipment used in her business.She acquired the equipment three years ago for $50,000 and has recognized $30,000 of depreciation across the years in use.In order to recognize any Sec.1231 gain,she must sell the equipment for more than
A)$0.
B)$20,000.
C)$30,000.
D)$50,000.

Accepted Answer

The answer of Terry has sold equipment used in her...

Question 6

A building used in a business for more than a year is sold.Sec.1250 will not cause depreciation recapture if
A)the building is fully depreciated.
B)the building was placed in service after 1986.
C)straight-line depreciation was used.
D)All of the above.

Accepted Answer

Sec.1250 will not cause depreciation recapture if all of the above conditions are met.

Question 7

A taxpayer has a gain on Sec.1245 property.None of the gain will be treated as Sec.1231 gain unless the sale price exceeds the original cost.

Accepted Answer

This statement is true. Sec.1245 property includes certain types of personal property, and any gain realized on the sale of Sec.1245 property is generally treated as ordinary income rather than capital gain. However, if the sale price exceeds the original cost of the Sec.1245 property, any excess gain may be treated as Sec.1231 gain, which is preferentially taxed as long-term capital gain.

Question 8

During the current year,a corporation sells equipment for $300,000.The equipment cost $270,000 when purchased and placed in service two years ago and $60,000 of depreciation deductions were allowed.The results of the sale are
A)ordinary income of $90,000.
B)Sec.1231 gain of $90,000.
C)ordinary income of $60,000 and LTCG of $30,000.
D)ordinary income of $60,000 and Sec.1231 gain of $30,000.

Accepted Answer

The equipment's adjusted basis is $210,000 ($270,000 cost - $60,000 depreciation). The sale price is $300,000, resulting in a gain of $90,000. The $60,000 depreciation is recaptured as ordinary income, and the remaining $30,000 is a Sec. 1231 gain.

Question 9

Sec.1245 applies to gains on the sale of depreciable personal property,but it generally does not apply to depreciable real property.

Accepted Answer

Sec. 1245 specifically applies to gains on the sale of depreciable personal property, but not to depreciable real property unless it is considered "recaptured" under certain circumstances.

Question 10

For noncorporate taxpayers,depreciation recapture is not required on real property placed in service after 1986.

Accepted Answer

Noncorporate taxpayers are exempt from depreciation recapture on real property placed in service after 1986. This means that they are not required to pay taxes on the gain resulting from the sale of depreciation taken in prior years on the property.

Question 11

The amount recaptured as ordinary income under either Sec.1245 or Sec.1250 can never exceed the realized gain.

Accepted Answer

This is because the amount recaptured is always limited by the amount of gain actually realized on the sale or disposition of the property.

Question 12

When corporate and noncorporate taxpayers sell real property placed in service after 1986,all depreciation taken will be taxed at a maximum rate of 25%.

Accepted Answer

When corporate and noncorporate taxpayers sell real property placed in service after 1986, the depreciation taken will be taxed at a maximum rate of 25% for non-corporate taxpayers, but for corporate taxpayers, it is taxed as ordinary income tax rates.

Question 13

An unincorporated business sold two warehouses during the current year.The straight-line depreciation method was used for the first building and the accelerated method (ACRS)was used for the second building.Information about those buildings is presented below. $\begin{array}{|l|c|c|} 
\hline& \text { Building No. } 1 & \text { Building No. 2 } \
\hline \text { Date acquired } & 1986 & 1986 \
\hline \text { Cost } & \$ 800,000 & \$ 900,000 \
\hline\text { Accum. Depreciation }&800,000\\text { -Straight-line }\
\hline\text {-ACRS depreciation } & & 900,000 \
\hline \text { Selling Price } & 80,000 & 400,000 \
\hline
\end{array}$ How much gain from these sales should be reported as Sec.1231 gain and ordinary income due to depreciation recapture by the owner of the business?
A) $$\begin{array} { |l | l| } 
\hline\text { Sec. 1231 Gain } & \text { Ordinary Income } \
\hline \$ 480,000 & \$ 0 \
\hline
\end{array}$$
B) $$\begin{array} {| l | l| } 
\hline\text { Sec. 1231 Gain } & \text { Ordinary Income } \
\hline \$ 80,000 & \$ 400,000 \
\hline
\end{array}$$
C) $$\begin{array} {| l | l |} 
\hline\text { Sec. 1231 Gain } & \text { Ordinary Income } \
\hline \$ 0 & \$ 480,000\\hline
\end{array}$$
D) $$\begin{array} {| l | l |} 
\hline\text { Sec. 1231 Gain } & \text { Ordinary Income } \
\hline \$ 400,000 & \$ 80,000 \
\hline
\end{array}$$

Accepted Answer

The answer of An unincorporated business sold two warehouses during...

Question 14

A taxpayer acquired new machinery costing $50,000 three years ago.The taxpayer had elected Sec.179 expensing to deduct the full cost in the year of acquisition.The taxpayer sells the machinery this year and realizes a $32,000 gain.Sec.1245 will not require any ordinary income recapture on the sale of this asset due to the Sec.179 expensing.

Accepted Answer

When a taxpayer elects to expense property under Sec.179, they must recapture any excess deduction under Sec.1245 if they sell the property at a gain. Therefore, the statement is false. In this scenario, the taxpayer must recapture up to $18,000 of ordinary income under Sec.1245 (the excess of the cost over the basis after the Sec.179 deduction).

Question 15

A sole proprietor plans to sell an office building which was acquired and placed in service in 1995.Sec.1250 requires a portion of gain realized on the sale of a building used in a business and depreciated under MACRS to be recaptured as ordinary gain.

Accepted Answer

The answer of A sole proprietor plans to sell an...

Question 16

Sec.1245 recapture applies to all the following except
A)depreciable personal property sold at a gain.
B)depreciable personal property sold at a loss.
C)property expensed under Sec.179.
D)amortizable intangible personal property.

Accepted Answer

Sec.1245 recapture applies to depreciable personal property sold at a gain, property expensed under Sec.179, and amortizable intangible personal property. It does not apply to property sold at a loss.

Question 17

If a taxpayer has gains on Sec.1231 assets,Secs.1245 and 1250 must be applied first to determine any amounts recaptured as ordinary income,and any excess gain may then be netted with Sec.1231 losses for possible long-term capital gain treatment.

Accepted Answer

This is the correct order of application for gains on Sec. 1231 assets.

Question 18

Section 1250 does not apply to assets sold or exchanged at a loss.

Accepted Answer

Section 1250 of the Internal Revenue Code applies to the depreciation of real property, and specifically deals with the potential recapture of that depreciation when the property is sold or exchanged. However, it only applies when there is a gain on the sale or exchange, not when there is a loss.

Question 19

During the current year,Hugo sells equipment for $150,000.The equipment cost $175,000 when placed in service two years ago,and $55,000 of depreciation deductions were allowed.The results of the sale are
A)LTCG of $30,000.
B)Sec.1231 gain of $30,000.
C)Sec.1245 ordinary income $30,000.
D)Sec.1250 ordinary income of $30,000.

Accepted Answer

The equipment is subject to Sec. 1245 recapture rules. The gain is calculated as the selling price ($150,000) minus the adjusted basis ($175,000 - $55,000 = $120,000), resulting in a $30,000 gain. Under Sec. 1245, this gain is treated as ordinary income to the extent of depreciation taken.

Question 20

All of the following statements regarding Sec.1245 are true except
A)Sec.1245 does not apply to any buildings placed in service after 1986.
B)Sec.1245 applies to assets sold or exchanged at a gain or at a loss.
C)Sec.1245 property includes nonresidential real estate that qualified as recovery property under the ACRS rules unless the taxpayer elected to use the straight-line method of cost recovery.
D)Sec.1245 ordinary gain treatment applies to total depreciation or amortization allowed or allowable but not more than the realized gain.

Accepted Answer

Sec.1245 applies only to assets sold or exchanged at a gain, not at a loss.

Quiz 29: Property Transactions: Sec1231 and Recapture

Unrecaptured 1250 gain is the amount of long-term capital gain which would be taxed as ordinary income if Sec.1250 provided for the recapture of all depreciation and not just additional depreciation.

Sec.1245 can increase the amount of gain recognized on an asset.

Sec.1245 ordinary income recapture can apply to buildings placed in service prior to 1987.

With respect to residential rental property

Terry has sold equipment used in her business.She acquired the equipment three years ago for $50,000 and has recognized $30,000 of depreciation across the years in use.In order to recognize any Sec.1231 gain,she must sell the equipment for more than

A building used in a business for more than a year is sold.Sec.1250 will not cause depreciation recapture if

A taxpayer has a gain on Sec.1245 property.None of the gain will be treated as Sec.1231 gain unless the sale price exceeds the original cost.

During the current year,a corporation sells equipment for $300,000.The equipment cost $270,000 when purchased and placed in service two years ago and $60,000 of depreciation deductions were allowed.The results of the sale are

Sec.1245 applies to gains on the sale of depreciable personal property,but it generally does not apply to depreciable real property.

For noncorporate taxpayers,depreciation recapture is not required on real property placed in service after 1986.

The amount recaptured as ordinary income under either Sec.1245 or Sec.1250 can never exceed the realized gain.

When corporate and noncorporate taxpayers sell real property placed in service after 1986,all depreciation taken will be taxed at a maximum rate of 25%.

A sole proprietor plans to sell an office building which was acquired and placed in service in 1995.Sec.1250 requires a portion of gain realized on the sale of a building used in a business and depreciated under MACRS to be recaptured as ordinary gain.

Sec.1245 recapture applies to all the following except

If a taxpayer has gains on Sec.1231 assets,Secs.1245 and 1250 must be applied first to determine any amounts recaptured as ordinary income,and any excess gain may then be netted with Sec.1231 losses for possible long-term capital gain treatment.

Section 1250 does not apply to assets sold or exchanged at a loss.

During the current year,Hugo sells equipment for $150,000.The equipment cost $175,000 when placed in service two years ago,and $55,000 of depreciation deductions were allowed.The results of the sale are

All of the following statements regarding Sec.1245 are true except