Question 1

Section 1250 depreciation recapture will apply when accelerated depreciation was used on property employed outside the United States and that is sold at a gain.

Accepted Answer

Section 1250 depreciation recapture applies to real property (such as buildings) that was used in a business or held for investment purposes and is sold at a gain. If accelerated depreciation was used on this property, and it was employed outside the United States, the recapture rules still apply.

Question 2

Involuntary conversion gains may be deferred if the proceeds of the involuntary conversion are reinvested.

Accepted Answer

According to IRS rules, if the proceeds from an involuntary conversion (such as fire, theft, or condemnation) are reinvested in qualified property within a certain time frame, the gain can be deferred. This is known as the involuntary conversion rule.

Question 3

Nonrecaptured § 1231 losses from the six prior tax years may cause current-year net § 1231 gain to be treated as ordinary income.

Accepted Answer

The answer of Nonrecaptured § 1231 losses from the six...

Question 4

Depreciation recapture under § 1245 and § 1250 is reported on Form 4797.

Accepted Answer

Depreciation recapture under § 1245 and § 1250 is indeed reported on Form 4797.

Question 5

Part III of Form 4797 is used to report gains from the sale of depreciable business equipment sold at a gain and held more than one year.

Accepted Answer

Part III of Form 4797 is specifically for reporting gains from the sale of depreciable business equipment that was held for more than one year and sold at a profit.

Question 6

Property sold to a related party that is depreciable by the purchaser may cause the seller to have ordinary gain.

Accepted Answer

According to the IRS, when a seller sells depreciable property to a related party, any gain on the sale is treated as ordinary income up to the amount of depreciation previously taken by the purchaser. This is known as depreciation recapture.

Question 7

If § 1231 asset casualty gains and losses net to a gain, the gain is treated as a § 1231 gain.

Accepted Answer

If the netting of § 1231 asset casualty gains and losses results in a gain, the gain is treated as a § 1231 gain.

Question 8

The maximum § 1245 depreciation recapture generally equals the accumulated depreciation.

Accepted Answer

This is true. § 1245 depreciation recapture is the recapture of certain depreciation deductions previously claimed on assets used in a trade or business or for the production of income. The maximum amount of depreciation recapture is generally equal to the accumulated depreciation taken on the asset being sold.

Question 9

Casualty gains and losses from nonpersonal use assets are not netted against casualty gains and losses from personal use assets.

Accepted Answer

Casualty gains and losses from nonpersonal use assets and personal use assets are not combined or offset. They must be reported separately.

Question 10

Section 1231 lookback losses may convert some or all of § 1245 gain into ordinary income.

Accepted Answer

The answer of Section 1231 lookback losses may convert some...

Question 11

The Code contains two major depreciation recapture provisions: § 1245 and § 1250.

Accepted Answer

The Code does contain two major depreciation recapture provisions, § 1245 and § 1250.

Question 12

The § 1245 depreciation recapture potential does not reduce the amount of the charitable contribution deduction under § 170.

Accepted Answer

The answer of The § 1245 depreciation recapture potential does...

Question 13

Recognized gains and losses from the disposition of a capital asset may occur as a result of a:

Accepted Answer

Recognized gains and losses can result from a sale, exchange, casualty, or condemnation of a capital asset. Therefore, all options (A, B, C, and D) are correct, and the best choice is E, which includes all of these options.

Question 14

A personal use property casualty loss that occurs in a nonfederally declared disaster area is deductible only to the extent it exceeds 10% of AGI.

Accepted Answer

Personal casualty losses for individuals are generally not deductible unless they are attributable to a federally declared disaster. The 10% AGI limitation applies to federally declared disasters, not to nonfederally declared disaster areas.

Question 15

Section 1245 applies to amortizable § 197 intangible assets.

Accepted Answer

Section 1245 of the Internal Revenue Code applies to amortizable § 197 intangible assets, which are intangible assets that are acquired as part of the purchase of a business or in connection with the acquisition of an ownership interest in a business. This section governs the tax treatment of gains and losses on the disposition of these assets.

Question 16

Personal use property casualty gains and losses are not subject to the § 1231 rules.

Accepted Answer

Personal use property casualty gains and losses are not considered under the § 1231 rules as they are not related to business or investment activities. These gains and losses are reported on Schedule D of Form 1040.

Question 17

For § 1245 recapture to apply, accelerated depreciation must have been taken on the property.

Accepted Answer

The answer of For § 1245 recapture to apply, accelerated...

Question 18

The maximum amount of the unrecaptured § 1250 gain (25% gain) is the depreciation taken on real property sold at a recognized gain.

Accepted Answer

This is true. The unrecaptured § 1250 gain is the portion of the gain on the sale of real property that represents depreciation taken while the property was owned. The maximum amount of this gain is generally equal to the total amount of depreciation taken on the property.

Question 19

Section 1245 depreciation recapture potential does not carry over from a deceased taxpayer to the beneficiary taxpayer.

Accepted Answer

Section 1245 depreciation recapture potential is not carried over to the beneficiary taxpayer upon the death of the original taxpayer. Instead, the basis of the inherited property is adjusted to its fair market value at the date of the original owner's death.

Question 20

Once § 1231 gains are netted against § 1231 losses, if the gains exceed the losses, the net gain is offset by the
lookback nonrecaptured § 1231 losses.

Accepted Answer

This is true according to the tax code. Net § 1231 gains are first offset by lookback nonrecaptured § 1231 losses before being taxed at the applicable capital gains rate.

Quiz 14: Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions