Deck 29: Property Transactions: Sec1231 and Recapture

Question 1

Jeremy has $18,000 of Sec.1231 gains and $23,000 of Sec.1231 losses.The gains and losses are characterized as

A) $$\begin{array} { | l | l | l | l | } \hline \text { Capital Gain } & \text { Capital Loss } & \begin{array} { l } \text { Ordinary } \\\text { Income }\end{array} & \text { Ordinary Loss } \\\hline & & \$ 18,000 & \$ 23,000 \\\hline\end{array}$$
B) $$\begin{array} { | l | l | l | l | } \hline \text { Capital Gain } & \text { Capital Loss } & \begin{array} { l } \text { Ordinary } \\\text { Income }\end{array} & \text { Ordinary Loss } \\\hline \$ 18,000 & & & \$ 23,000 \\\hline\end{array}$$
C) $$\begin{array} { | l | l | l | l | } \hline \text { Capital Gain } & \text { Capital Loss } & \begin{array} { l } \text { Ordinary } \\\text { Income }\end{array} & \text { Ordinary Loss } \\\hline \$ 18,000 & \$ 23,000 & & \\\hline\end{array}$$
D) $$\begin{array} { | l | l | l | l | } \hline \text { Capital Gain } & \text { Capital Loss } & \begin{array} { l } \text { Ordinary } \\\text { Cncome }\end{array} & \text { Ordinary Loss } \\\hline \$ 18,000 & \$ 3,000 & & \$ 20,000 \\\hline\end{array}$$

Answer 1

$$\begin{array} { | l | l | l | l | } \hline \text { Capital Gain } & \text { Capital Loss } & \begin{array} { l } \text { Ordinary } \\\text { Income }\end{array} & \text { Ordinary Loss } \\\hline & & \$ 18,000 & \$ 23,000 \\\hline\end{array}$$

Question 2

Aamir has $25,000 of net Sec.1231 gains this year on business assets.In addition,he incurred $18,000 of loss on the sale of stock held six months.Aamir will include in his AGI

A)$3,000 short-term capital loss and $25,000 ordinary gain.
B)$22,000 net capital gain.
C)$7,000 net capital gain.
D)$7,000 short-term capital gain.

Answer 2

C

Question 3

During the current year,Kayla recognizes a $40,000 Sec.1231 gain on sale of land and a $22,000 Sec.1231 loss on the sale of land.Prior to this,Kayla's only Sec.1231 item was a $10,000 loss six years ago.Kayla is in the 24% marginal tax bracket.The amount of tax resulting from these transactions is

A)$2,700.
B)$3,600.
C)$4,000.
D)$5,040.

Answer 3

A

Question 4

Daniel recognizes $35,000 of Sec.1231 gains and $25,000 of Sec.1231 losses during the current year.The only other Sec.1231 item was a $4,000 loss three years ago.This year,Daniel must report

A) $$\begin{array} {| l | l | } \hline \text { NLTCG } & \text { Ordinary Income } \\\hline \$ 10,000 & \$ 0\\\hline\end{array}$$
B) $$\begin{array} {| l | l | } \hline \text { NLTCG } & \text { Ordinary Income } \\\hline \$ 6,000 & \$ 4,000\\\hline\end{array}$$
C) $$\begin{array} { | l | l | } \hline \text { NLTCG } & \text { Ordinary Income } \\\hline \$ 4,000 & \$ 6,000\\\hline\end{array}$$
D) $$\begin{array} { | l | l | } \hline \text { NLTCG } & \text { Ordinary Income } \\\hline \$ 4,000 & \$ 10,000\\\hline\end{array}$$

Question 5

A net Sec.1231 gain is treated as ordinary income to the extent of any nonrecaptured net Sec.1231 losses for the preceding five years.

Question 6

Yelenis,whose tax rate is 32%,sells one Sec.1231 asset this year,resulting in a $50,000 gain.Included in the $50,000 Sec.1231 gain is $30,000 of unrecaptured Sec.1250 gain.A review of Yelenis tax files for the past five years indicates one prior Sec.1231 sale which resulted in a $14,000 loss.The gain will be taxed as

A) $$\begin{array} {| l | l | l | } \hline 15 \% & 25 \% & 32 \% \\\hline \$ 20,000 & \$ 16,000 & \$ 0 \\\hline\end{array}$$
B) $$\begin{array} { | l | l | l | } \hline 15 \% & 25 \% & 32 \% \\\hline \$ 20,000 & \$ 16,000 & \$ 14,000 \\\hline\end{array}$$
C) $$\begin{array} {| l | l | l | } \hline 15 \% & 25 \% & 32 \% \\\hline \$ 6,000 & \$ 30,000 & \$ 0 \\\hline\end{array}$$
D) $$\begin{array} { | l | l | l | } \hline 15 \% & 25 \% & 32 \% \\\hline \$ 6,000 & \$ 30,000 & \$ 14,000 \\\hline\end{array}$$

Question 7

Mark owns an unincorporated business and has $20,000 of Sec.1231 gains and $22,000 of Sec.1231 losses.He must report a net capital loss of $2,000 on his tax return.

Question 8

Why did Congress establish favorable treatment for 1231 assets?

A)to encourage the mobility of capital
B)to allow a larger deduction for losses
C)to help business owners replace assets which had declined in value
D)all of the above

Question 9

Jaiyoun sells Sec.1231 property this year,resulting in a $4,000 gain.This is the first time he has disposed of any Sec.1231 property.Jaiyoun's tax rate is 10%.His tax on the Sec.1231 gain will be

A)$0.
B)$400.
C)$600.
D)$1,120.

Question 10

Gains and losses resulting from condemnations of Sec.1231 property and capital assets held more than one year are classified as ordinary gains and losses.

Question 11

In 2019,Thomas,a single taxpayer who has a marginal tax rate of 10%,sells land that is Sec.1231 property at a gain of $4,000.This is the first time Thomas has ever sold a Sec.1231 asset.If he has no other 1231 transactions or capital asset transactions,Thomas will pay no tax on the $4,000 gain.

Question 12

Sec.1231 property must satisfy a holding period of more than one year.

Question 13

Depreciable property placed in service nine months earlier is considered Sec.1231 property.

Question 14

Pierce has a $16,000 Sec.1231 loss,a $12,000 Sec.1231 gain,and a salary of $50,000.What is the treatment of these items in Pierce's AGI?

A)Pierce has a LTCG of $12,000 and a net ordinary income of $34,000.
B)The 1231 gains and losses are treated as ordinary gains and losses making Pierce's AGI for the year $46,000.
C)Pierce has a $3,000 LTCL which is deductible for AGI making AGI $47,000.He also has a $1,000 LTCL carryover.
D)Pierce has net LTCG of $9,000 and $37,000 of net ordinary income.

Question 15

Gains and losses from involuntary conversions of property used in a trade or business generally are classified as capital gains and losses.

Question 16

Any gain or loss resulting from the sale or disposition of depreciable property used in trade or business and held one year or less is considered ordinary.

Question 17

Blair,whose tax rate is 24%,sells one tract of land at a gain of $29,000 and another tract of land at a gain of $11,000.Both tracts of land are Sec.1231 property.She has never had any other Sec.1231 transactions.How are the gains taxed?

A)ordinary income of $40,000 taxed at 28%
B)a net capital gain of $40,000 which is not taxed
C)a net capital gain of $40,000 taxed at 15%
D)ordinary income of $40,000 taxed at 25%

Question 18

During the current year,Danika recognizes a $30,000 Sec.1231 gain and a $22,000 Sec.1231 loss.Prior to this,Danika's only Sec.1231 item was a $15,000 loss two years ago.Danika must report a(n)

A)$8,000 net LTCG.
B)$8,000 ordinary income.
C)$15,000 ordinary income.
D)$8,000 ordinary income and $7,000 net LTCG.

Question 19

The sale of inventory results in ordinary gain or loss.

Question 20

During the current year,George recognizes a $30,000 Sec.1231 gain on sale of land and a $18,000 Sec.1231 loss on the sale of land.Prior to this,George's only Sec.1231 item was a $14,000 loss six years ago.George must report a

A)$12,000 net LTCG.
B)$12,000 ordinary income.
C)$14,000 ordinary income.
D)$10,000 ordinary income and $2,000 net LTCG.

Question 21

Harry owns equipment ($50,000 basis and $38,000 FMV)and a building ($140,000 basis and $156,000 FMV),which are used in his business.The two assets were acquired five years ago.Both the equipment and the building are destroyed in a fire,and Harry collects insurance proceeds equal to the assets' FMV.The tax result to Harry for this transaction is

A)the involuntary conversions are treated as ordinary gains and losses.
B)the involuntary conversions are treated as Sec.1231 gains and losses.
C)the loss on involuntary conversion is treated as a Sec.1231 loss while the gain is treated as an ordinary gain.
D)the loss on involuntary conversion is treated as an ordinary loss while the gain is treated as a Sec.1231 gain.

Question 22

If Sec.1231 applies to the sale or exchange of an unharvested crop sold with land,the costs of producing the crop are

A)capitalized.
B)deducted as an expense of operations when incurred and also deducted from the sales price at the time of the sale.
C)deducted when incurred if the land is sold but capitalized if the land is exchanged.
D)deducted as an expense of operations when incurred.

Question 23

A corporation owns many acres of timber,which it acquired three years ago,and which has a $150,000 basis for depletion.The timber is cut during the current year for use in the corporation's business.The FMV of the timber on the first day of the current year is $280,000.If the corporation makes the appropriate election,the tax result is

A)recognition of a Sec.1231 gain of $130,000.
B)no recognition of gain or loss since the timber is used in the business.
C)recognition of a gain at the time of sale if the timber is later sold with the gain equal to the sales price less the basis in the timber.
D)recognition of a gain if the timber is later sold with the gain equal to the sales price less $280,000 (FMV on the first day of the year of the cutting).

Question 24

Which of the following assets is 1231 property?

A)a machine used in the company's manufacturing operations
B)an investment in corporate stock
C)land held for investment
D)items held for resale by a retailer

Question 25

If realized gain from disposition of business equipment exceeds total depreciation or cost recovery,a portion of the gain will receive Sec.1231 treatment if the equipment's holding period is more than one year.

Question 26

Sec.1231 property will generally have all the following characteristics except

A)real or depreciable property.
B)used in trade or business.
C)held for sale to customers.
D)held for more than one year.

Question 27

If the accumulated depreciation on business equipment held longer than one year exceeds realized gain on the sale of the equipment,all of the realized gain will be treated as Sec.1231 gain.

Question 28

Gain due to depreciation recapture is included in the netting of Sec.1231 gains and losses.

Question 29

Cassie owns equipment ($45,000 basis and $30,000 FMV)and a building ($152,000 basis and $158,000 FMV),which are used in Cassie's business.Both assets were acquired two years ago.The equipment and the building are destroyed in a fire,and Cassie collects insurance proceeds equal to the assets' FMV.The tax result to Cassie for this transaction is a

A)$15,000 Sec.1231 loss and a $6,000 ordinary gain.
B)$15,000 ordinary loss and a $6,000 ordinary gain.
C)$15,000 ordinary loss and a $6,000 Sec.1231 gain.
D)$15,000 Sec.1231 loss and a $6,000 Sec.1231 gain.

Question 30

A corporation owns many acres of timber,which it acquired three years ago,and which has a $120,000 basis.The timber was cut last year for use in the corporation's business.The FMV of the timber on the first day of last year was $270,000.The corporation made the appropriate election to treat the cutting as a sale or exchange.The timber is sold for $300,000 this year.The tax result this year is

A)recognition of capital gain of $30,000.
B)recognition of Sec.1231 gain of $30,000.
C)recognition of ordinary income of $30,000.
D)no income recognized since all recognition occurs in the year of the cutting of the timber.

Question 31

For a business,Sec.1231 property does not include

A)timber,coal,or domestic iron ore.
B)inventory purchased 24 months ago.
C)an office building purchased five years ago.
D)land used in the business that was purchased two years ago.

Question 32

If the recognized losses resulting from involuntary conversions arising from casualty or theft exceed the recognized gains from such events (i.e.,a net loss from the casualty),all of the involuntary conversions are treated as ordinary gains and losses.

Question 33

This year Pranav had the gains and losses noted below on property,plant and equipment used in his business.Each asset had been held longer than one year. $$\begin{array} {| l | r| } \hline\text { Gain due to insurance reimbursement for fire } & \$ 17,000 \\\hline \text { Loss due to condemnation } & ( 12,000 ) \\\hline \text { Gain on sale of Sec. 1231 property } & 21,000 \\\hline\end{array}$$ A review of Pranav's reporting of Sec.1231 transactions for the prior five years indicates a net Sec.1231 loss of $14,000 three years ago and a net Sec.1231 gain of $8,000 last year (before the five-year lookback).Pranav will recognize

A) $$\begin{array} {| r | r | } \hline \text { Ordinary gain (loss) } & \text { LTCG(L) } \\\hline \$ ( 6,000 ) & \$ 26,000\\\hline\end{array}$$
B) $$\begin{array} {| r | r | } \hline \text { Ordinary gain (loss) } & \text { LTCG(L) } \\\hline \$ ( 18,000 ) & \$ 38,000 \\\hline\end{array}$$
C) $$\begin{array} { |r | r |} \hline \text { Ordinary gain (loss) } & \text { LTCG(L) } \\\hline\$ 0 & \$ 18,000\\\hline\end{array}$$
D) $$\begin{array} {| r | r| } \hline \text { Ordinary gain (loss) } & \text { LTCG(L) } \\\hline \$ 6,00 \mathrm {~d} & \$ 20,00 \mathrm { l }\\\hline\end{array}$$

Question 34

Emma owns a small building ($120,000 basis and $123,000 FMV)and equipment ($35,000 adjusted basis and $22,000 FMV).Both assets were acquired three years ago and are used in Emma's business.Both are destroyed by fire.Insurance proceeds were equal to their FMVs.Only one other transfer of an asset occurs during the year,and a $3,000 LTCL is recognized.After considering all transactions,the tax result to Emma is a

A)$13,000 NLTCL.
B)$13,000 ordinary loss.
C)$3,000 LTCG; $3,000 LTCL; and $13,000 ordinary loss.
D)$10,000 net ordinary loss and a $3,000 NLTCL.

Question 35

This year Jenna had the gains and losses noted below on property,plant and equipment used in her business.Each asset had been held longer than one year.Jenna has not previously disposed of any business assets. $$\begin{array} { |l | r| } \hline\text { Loss due to insurance reimbursement for fire } & \$ ( 17,000 ) \\\hline \text { Loss due to condemnation } & ( 12,000 ) \\\hline \text { Gain on sale of Sec. } 1231 \text { property } & 21,000 \\\hline\end{array}$$ Jenna will recognize

A) $$\begin{array} { | r | r | } \hline \text { Ordinary gain (loss) } & \text { LTCG(L) } \\\hline \$ ( 17,000 ) & \$ 9,000 \\\hline\end{array}$$
B) $$\begin{array} { | r | r | } \hline \text { Ordinary gain (loss) } & \text { LTCG(L) } \\\hline \$ ( 29,000 ) & \$ 21,000 \\\hline\end{array}$$
C) $$\begin{array} { | r | r | } \hline \text { Ordinary gain (loss) } & \text { LTCG(L) } \\\hline \$ ( 8,000 ) & \$ 0 \\\hline\end{array}$$
D) $$\begin{array} {| r | r | } \hline \text { Ordinary gain (loss) } & \text { LTCG(L) } \\\hline \$ ( 12,000 ) & \$ 4,000 \\\hline\end{array}$$

Question 36

A taxpayer sells equipment used in her business for $50,000.She purchased the equipment three years ago for $90,000 and claimed $35,000 of depreciation over the three years of usage.The recapture provisions of Sec.1245 will result in the taxpayer recognizing some ordinary income.

Question 37

In order to be considered Sec.1231 property,all of the following livestock must be held for 12 months or more from date of acquisition except

A)goats.
B)hogs.
C)sheep.
D)cattle.

Question 38

Dinah owned land with a FMV of $130,000 (adjusted basis $120,000)which is investment property (a capital asset).Dinah owned a second tract of land,a 1231 asset,with a FMV of $46,000 (adjusted basis $50,000).Both tracts were acquired in 2001 and condemned by the state this year.The state paid an amount equal to FMV.If there are no other transactions involving capital assets or 1231 assets,Dinah must report on her current year return

A)$6,000 net ordinary income.
B)$6,000 net Sec.1231 gain treated as a net capital gain.
C)a LTCG of $10,000 and a 1231 loss of $4,000.
D)a LTCG of $10,000 and a nondeductible loss of $4,000.

Question 39

The purpose of Sec.1245 is to eliminate the advantage taxpayers would have if they were able to reduce ordinary income by depreciation deductions and also receive favorable Sec.1231 treatment when the asset was sold.

Question 40

For livestock to be considered Sec.1231 property

A)the livestock must be held for draft,breeding or dairy purposes,but not for sport.
B)cattle and horses must be held for at least 12 months from the date of acquisition.
C)cattle and horses must be held for at least 24 months from the date of acquisition.
D)livestock other than cattle and horses must be held for at least 24 months from the date of acquisition.

Question 41

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 42

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

Question 43

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

Question 44

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.

Question 45

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.

Question 46

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.

Question 47

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.

Question 48

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.

Question 49

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

Question 50

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

Question 51

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

Question 52

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%.

Question 53

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) $$\begin{array} {| l | l |} \hline\text { Sec. 1231 Gain } & \text { Ordinary Income } \\\hline \$ 400,000 & \$ 80,000 \\\hline\end{array}$$

Question 54

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.

Question 55

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.

Question 56

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.

Question 57

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.

Question 58

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

Question 59

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.

Question 60

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.

Question 61

Julie sells her manufacturing plant and land originally purchased in 1980.Accelerated depreciation had been taken on the building,but the building is now fully depreciated.Because it is fully depreciated,there is no "additional depreciation." Julie is in the 37% marginal tax bracket.Other information is as follows:
Property Original cost Total depreciation Adjusted basis Selling price
Plant $2,800,000 $2,800,000 $0 $3,000,000
Land $ 500,000 $500,000 $800,000
She has not sold any other assets this year.A review of her file indicates that the only asset dispositions in the past five years was a truck sold for a $10,000 loss last year.What are the tax consequences of the sale (type of gain; rates at which taxed)?

Question 62

Ross purchased a building in 1985,which he uses in his manufacturing business.Ross used the ACRS statutory rates to determine the cost-recovery deduction for the building.Ross's original cost for the building is $500,000 and cost-recovery deductions allowed are $500,000.If the building is sold for $340,000,the tax results to Ross are

A)$340,000 LTCG.
B)$340,000 Sec.1231 gain.
C)$340,000 Sec.1245 ordinary income.
D)$340,000 Sec.1250 ordinary income.

Question 63

In addition to the normal recapture rules of Sec.1250,corporations which sell depreciable real estate are subject to additional recapture rules of Sec.291.

Question 64

In 1980,Mr.Lyle purchased a factory building to use in business for $480,000.When Mr.Lyle sells the building for $580,000,he has taken depreciation of $470,000.Straight-line depreciation would have been $400,000.Mr.Lyle must report

A)$570,000 of ordinary gain.
B)$570,000 of Sec.1231 gain.
C)$70,000 of ordinary income and $500,000 of Sec.1231 gain.
D)$470,000 of ordinary gain and $100,000 of Sec.1231 gain.

Question 65

When appreciated property is transferred at death,the recapture potential carries over to the person who receives the property from the decedent.

Question 66

Trena LLC,a tax partnership owned equally by Trent and Nina,sells a building it had placed in service five years ago.Sec.291 will require that part of the gain (up to 20% of accumulated depreciation)be treated as ordinary gain,with the balance treated as Sec.1231 gain.

Question 67

In 1988,Artima Corporation (a C corporation)purchased an office building for $400,000 for use in its business.The building is sold during the current year for $550,000.Total MACRS depreciation allowed for the building was $390,000.This is the only business asset sold by the corporation over the past six years.As result of the sale,how much ordinary gain will Artima Corporation report?

A)$390,000
B)$540,000
C)$0
D)$78,000

Question 68

When a donee disposes of appreciated gift property,the recapture amount for the donee is computed by including the recapture amount attributable to the donor.

Question 69

Eric purchased a building in 2008 that he uses in his business.Eric uses the straight-line method for the building.Eric's original cost for the building is $420,000 and cost-recovery deductions are $120,000.Eric is in the top tax bracket and has never sold any other business assets.If the building is sold for $560,000,the tax results are

A)$260,000 Sec.1231 gain,all taxable at 20%.
B)$260,000 unrecaptured Sec.1250 gain,all taxable at 25%.
C)$260,000 Sec.1231 gain,of which $120,000 is unrecaptured Sec.1250 gain taxable at 25% and the $140,000 balance is taxable at 20%.
D)$120,000 Sec.1245 ordinary income,$140,000 Sec.1231 gain taxable at 20%.

Question 70

Frisco Inc.,a C corporation,placed a building in service in 2002 and deducted straight-line depreciation under the MACRS system in the normal manner.It sold the building this year for a substantial gain.Because straight-line depreciation was used,Frisco will not need to recognize any ordinary gain.

Question 71

Octet Corporation placed a small storage building in service 15 years ago.Octet's original cost for the building is $800,000 and the cost recovery deductions are $300,000.This year the building is sold for $1,100,000.The amount and character of the gain are

A)ordinary gain of $60,000 and Sec.1231 gain of $540,000.
B)ordinary gain of $300,000 and Sec.1231 gain of $300,000.
C)ordinary gain of $600,000.
D)Sec.1231 gain of $600,000.

Question 72

Lily sells her manufacturing plant and land originally purchased in 1982.Accelerated depreciation had been taken on the building,but the building is now fully depreciated.Because it is fully depreciated,there is no "additional depreciation." Lily is in the 37% marginal tax bracket.Other information is as follows:
Property Original cost Total depreciation Adjusted basis Selling price
Plant $2,800,000 $2,800,000 $0 $3,000,000
Land $ 500,000 $500,000 $800,000
She has not sold any other assets this year.A review of her file indicates that the only asset dispositions in the past five years was a truck sold for a $10,000 loss last year.What are the tax consequences of the sale (type of gain; rates at which taxed)?

Question 73

Alejandro purchased a building in 1985,which he uses in his manufacturing business.Alejandro used the ACRS statutory rates to determine the cost-recovery deduction for the building.Alejandro's original cost for the building is $500,000 and cost-recovery deductions allowed are $500,000.If the building is sold for $800,000,the tax results to Alejandro are

A)$500,000 Sec.1245 ordinary income and $300,000 Sec.1231 gain.
B)$800,000 Sec.1245 ordinary income.
C)$500,000 Sec.1245 ordinary income and $300,000 Sec.1250 income.
D)$800,000 Sec.1231 gain.

Question 74

Rontco Corporation (a C corporation)purchased an office building for $400,000 for use in its business about ten years ago.The building is sold during the current year for $350,000.Total MACRS depreciation allowed for the building was $125,000.This is the only business asset sold by the corporation over the past six years.As result of the sale,how much ordinary gain will Rontco Corporation report?

A)$15,000
B)$25,000
C)$75,000
D)$0

Question 75

With regard to noncorporate taxpayers,all of the following statements are true regarding Sec.1250 recapture except

A)Sec.1250 affects the character of the gain,not the amount of the gain.
B)Sec.1250 applies to assets sold or exchanged at either a gain or a loss.
C)Sec.1250 ordinary income does not exist if the straight-line method of depreciation is used.
D)Sec.1250 ordinary income is never more than the additional depreciation allowed.

Question 76

A corporation sold a warehouse during the current year.The company purchased the building 25 years ago.Details are as follows $$\begin{array} { | l | r | } \hline \text { Cost } & \$ 800,000 \\\hline \text { Accumulated Depreciation } & 620,000 \\\hline \text { Selling Price } & 890,000 \\\hline\end{array}$$ How much gain should the corporation report as Sec.1231 gain?

A)$124,000
B)$90,000
C)$586,000
D)$710,000

Question 77

Gifts of appreciated depreciable property may trigger recapture of depreciation of cost-recovery deductions to the donor as of the date of gift.

Question 78

Emily,whose tax rate is 32%,owns an office building which she purchased for $900,000 on March 18 of last year.The building is sold for $950,000 on February 20 of this year when the adjusted basis of the building was $876,000.The tax results to Emily are

A)$74,000 1231 gain taxed at 15%.
B)$74,000 ordinary income taxed at 32%.
C)$24,000 1250 unrecaptured gain taxed at 25% and $50,000 1231 gain taxed at 15%.
D)$24,000 1231 gain taxed at 15% and $50,000 ordinary income taxed at 32%.

Question 79

Marta purchased residential rental property for $600,000 on January 1,1985.Total ACRS deductions for 1985 through the date of sale amounted to $600,000.If the straight-line method of depreciation had been used,depreciation would have been $600,000.The property is sold for $750,000 on January 1 of the current year.The amount and character of the gain is

A)$750,000 Sec.1231 gain.
B)$150,000 Sec.1231 gain and $600,000 ordinary income.
C)$750,000 ordinary gain due to Sec 1245.
D)$750,000 ordinary gain due to Sec.1250.

Question 80

The additional recapture under Sec.291 is 25% of the difference between the amount that would have been recaptured if the property was Sec.1245 property and the actual recapture under Sec.1250.