Question 1

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

Accepted Answer

Section 1245 recapture applies to the depreciation taken on the property, not just accelerated depreciation. It includes all depreciation claimed, not limited to accelerated methods.

Question 2

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 rules of § 1231 netting. If the net § 1231 gain is still positive after offsetting § 1231 losses, the lookback nonrecaptured § 1231 losses are used to offset any ordinary income or short-term capital gains in the current tax year.

Question 3

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

Accepted Answer

If property is sold to a related party and is depreciable by the purchaser, the seller may have ordinary gain instead of capital gain. This is because the related party may be able to depreciate the property at a higher rate than an unrelated purchaser, resulting in a larger tax deduction for the purchaser and a larger tax liability for the seller.

Question 4

Stella purchased vacant land in 2012 that she subdivided for resale as lots.All 10 of the lots were sold during 2019. Each lot had a tax basis of $12,000 and sold for $35,000.Stella made no substantial improvements to the lots.She acted as her own real estate broker; so there were no sales expenses for selling the lots.Which of the following statements is correct?

Accepted Answer

The answer of Stella purchased vacant land in 2012 that...

Question 5

A worthless security had a holding period of six months when it became worthless on December 10, 2018.The investor who had owned the security had a basis of $20,000 for it.Which of the following statements is correct?

Accepted Answer

Since the holding period of the security was less than one year, it is considered a short-term capital loss. The investor can deduct up to $3,000 of the loss against their ordinary income for the tax year and carry forward any remaining losses to future tax years.

Question 6

Section 1245 applies to amortizable § 197 intangible assets.

Accepted Answer

Section 1245 specifically applies to the disposition of depreciable and amortizable property, including §197 intangible assets, which are subject to amortization over a period of 15 years.

Question 7

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 8

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 are generally not deductible unless they result from a federally declared disaster. The 10% AGI limitation does not apply because the deduction itself is not allowed unless it's related to a federally declared disaster.

Question 9

Stanley operates a restaurant as a sole proprietorship.Which of the following items are capital assets in his hands?

Accepted Answer

The answer of Stanley operates a restaurant as a sole...

Question 10

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

Accepted Answer

Recognized gains and losses from the disposition of a capital asset can occur as a result of any of the listed events, including a sale, exchange, casualty, or condemnation.

Question 11

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 when a property is sold at a gain after being depreciated under an accelerated method. This applies to property employed both inside and outside the United States.

Question 12

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 13

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

Accepted Answer

The maximum § 1245 depreciation recapture generally equals the accumulated depreciation, so this statement is true.

Question 14

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

Accepted Answer

The maximum amount of unrecaptured § 1250 gain is indeed the depreciation taken on real property sold at a recognized gain. This is because the unrecaptured § 1250 gain is essentially the portion of the gain that is subject to a lower tax rate due to the fact that it is attributable to depreciation that was previously claimed on the property. The maximum amount of unrecaptured § 1250 gain is capped at the amount of depreciation that was taken on the property, which is generally limited to 25% of the gain.

Question 15

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 16

The possible holding periods for capital assets include:

Accepted Answer

The correct holding periods for capital assets are long-term, which means the asset has been held for greater than 12 months. Therefore, the only correct choice is C.

Question 17

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

Accepted Answer

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

Question 18

A business taxpayer sells inventory for $80,000.The adjusted basis of the property is $58,000 at the time of the sale and the inventory had been held more than one year.The taxpayer has:

Accepted Answer

The inventory sold is considered a section 1231 asset, which is subject to ordinary income treatment. Since the inventory was held for more than one year, it is considered a long-term capital asset for determining the classification of the gain or loss. However, since it is a section 1231 asset, any gain would first be treated as ordinary income and any remaining gain would then be classified as a long-term capital gain. Therefore, the taxpayer would have an ordinary gain of $22,000 ($80,000 - $58,000).

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 specific to the taxpayer who owned the property at the time of sale, and does not carry over to any beneficiaries of the estate. Any depreciation recapture taxes owed must be paid by the estate before assets can be transferred to beneficiaries.

Question 20

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 in the § 1231 rules, which apply only to gains and losses from the sale or exchange of property used in a trade or business.

Quiz 8: Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions

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

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.

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

A worthless security had a holding period of six months when it became worthless on December 10, 2018.The investor who had owned the security had a basis of $20,000 for it.Which of the following statements is correct?

Section 1245 applies to amortizable § 197 intangible assets.

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

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.

Stanley operates a restaurant as a sole proprietorship.Which of the following items are capital assets in his hands?

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

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.

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

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

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

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

The possible holding periods for capital assets include:

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

A business taxpayer sells inventory for $80,000.The adjusted basis of the property is $58,000 at the time of the sale and the inventory had been held more than one year.The taxpayer has:

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

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