Question 1

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.

Accepted Answer

Sec. 1250 will not require any depreciation recapture, but Sec. 291 requires recapture for C corporations.

Question 2

Installment sales of depreciable property which result in recaptured income under Secs. 1245 or 1250 require that the recaptured income be recognized in the year of sale.

Accepted Answer

The recapture income component of the total gain cannot be spread over the installment period. It must be recognized in the year of disposition.

Question 3

Octet Corporation placed a small storage building in service in 2000. 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.

Accepted Answer

11eac5e3_b111_e7ce_a396_0796729f6851_TB5639_00 The Sec. 291 recapture equals 20% of the recapture that would have been required if Sec. 1245 had applied less the amount recaptured under Sec. 1250 [20% of (300,000 - 0)].

Question 4

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

Accepted Answer

The depreciation recapture will apply when the donee recognizes the gain at the later disposition.

Question 5

WAM Corporation sold a warehouse during the current year for $830,000. The building had been acquired in 1991 at a cost of $730,000 and had total straight-line depreciation of $510,000.
What is the amount and nature of the gain or loss on the sale of the warehouse?

Accepted Answer

The answer of WAM Corporation sold a warehouse during the...

Question 6

A taxpayer purchased a factory building in 1985 for $800,000. After claiming ACRS-accelerated depreciation of $800,000, she sells the asset for $1,000,000 during the current year. No payment is received during the current year, and the $1,000,000 balance to be paid with interest at the interest rate in four annual payments beginning one year from date of sale. The installment sales method is adopted. How much ordinary income is recognized in the current year?
A) $ 0
B) $200,000
C) $800,000
D) $1,000,000

Accepted Answer

$800,000 of the $1,000,000 ($1,000,000 amount realized less $0 adjusted basis) gain is Sec. 1245 ordinary income and must be recognized in the year of sale.

Question 7

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.

Accepted Answer

A donor cannot escape depreciation recapture by gifting the property. The depreciation recapture requirement attaches to the donee.

Question 8

When gain is recognized on an involuntary conversion, gain is subject to recapture under Sec. 1245 or Sec.1250.

Accepted Answer

All the regular tax law provisions determining character of gain apply to gain recognized due to an involuntary conversion.

Question 9

Connors Corporation sold a warehouse during the current year for $980,000. The building had been acquired in 1980 at a cost of $830,000. The building is fully depreciated.
What is the amount and nature of the gain or loss on the sale of the warehouse?

Accepted Answer

The answer of Connors Corporation sold a warehouse during the...

Question 10

In 1980, Artima 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 depreciation allowed for the building was $350,000; straight-line would have been $320,000. As result of the sale, how much section 1231 gain will Artima Corporation report?
A) $350,000
B) $406,000
C) $320,000
D) $500,000

Accepted Answer

11eac5e3_b111_729b_a396_8188238184c2_TB5639_00 1231 gain: $500,000 gain - $30,000 (1250 recapture) - $64,000 (291) = $406,000

Question 11

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

Accepted Answer

Inherited assets get a "fresh start."

Question 12

Maura makes a gift of a van to a local food bank run by a charity. Maura had used the van in her trade or business. The van has a FMV of $6,500; a cost of $31,000; and $27,000 depreciation claimed. What is the amount of Maura's charitable contribution deduction?
A) $6,500
B) $31,000
C) $4,000
D) $2,500

Accepted Answer

If the van had been sold for $6,500, the realized and recognized gain would be $2,500 and all of the gain would be ordinary income due to the recapture of depreciation under Sec. 1245. The charitable contribution deduction is limited to $4,000 ($6,500 - $2,500) because none of the $2,500 gain would be taxed as a LTCG if the van was sold.

Question 13

Gain recognized on the sale or exchange of property between related parties is capital if the property is subject to depreciation in the hands of the transferee.

Accepted Answer

The gain is ordinary.

Question 14

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.

Accepted Answer

The correct rate is 20%.

Question 15

Costs of tangible personal business property which are expensed under Sec. 179 are subject to recapture if the property is converted to nonbusiness use before the end of the MACRS recovery period.

Accepted Answer

Sec. 179 (i.e. immediate) expensing must be recaptured if the property is converted to nonbusiness use.

Question 16

A corporation sold a warehouse during the current year. The straight-line depreciation method was used. Information about the building is presented below:  How much gain should the corporation report as section 1231 gain?
A) $124,000
B) $620,000
C) $586,000
D) $710,000

Accepted Answer

11eac5e3_b111_c0bd_a396_c13b4c213d04_TB5639_00 $710,000 total gain - $124,000 Sec. 291 recapture = $586,000 Sec. 1231 gain

Question 17

Douglas bought office furniture two years and four months ago for $25,000 to use in his business and elected to expense all of it under Sec. 179. Depreciation of $3,500 would have been taken under the MACRS rules. If Douglas converts the furniture to nonbusiness use today, Douglas must
A) amend the prior two years tax returns.
B) include $3,500 in gross income in year of conversion.
C) include $21,500 in gross income in year of conversion.
D) include $25,000 in gross income in year of conversion.

Accepted Answer

$25,000 depreciation taken - $3,500 depreciation that would have been taken = $21,500 must be recaptured.

Question 18

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.

Accepted Answer

Sec. 291 recapture does not apply to noncorporate taxpayers.

Question 19

If no gain is recognized in a nontaxable like-kind exchange involving Sec. 1245 or Sec. 1250 property, the recapture potential carries over to the replacement property.

Accepted Answer

A taxpayer cannot escape depreciation recapture by disposing of the property in a like-kind exchange. The depreciation recapture requirement attaches to the replacement asset.

Question 20

Describe the tax treatment for a noncorporate taxpayer in the 39.6% marginal tax bracket who sells each of the first two assets for $500,000 and each of the second two assets for $750,000. Each asset was purchased in 2011 and is used in a trade or business. There are no other gains and losses and no nonrecaptured Section 1231 losses.

Accepted Answer

The answer of Describe the tax treatment for a noncorporate...

Quiz 13: Property Transactions: Section 1231 and Recapture

Installment sales of depreciable property which result in recaptured income under Secs. 1245 or 1250 require that the recaptured income be recognized in the year of sale.

Octet Corporation placed a small storage building in service in 2000. 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

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

WAM Corporation sold a warehouse during the current year for $830,000. The building had been acquired in 1991 at a cost of $730,000 and had total straight-line depreciation of $510,000. What is the amount and nature of the gain or loss on the sale of the warehouse?

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.

When gain is recognized on an involuntary conversion, gain is subject to recapture under Sec. 1245 or Sec.1250.

Connors Corporation sold a warehouse during the current year for $980,000. The building had been acquired in 1980 at a cost of $830,000. The building is fully depreciated. What is the amount and nature of the gain or loss on the sale of the warehouse?

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

Maura makes a gift of a van to a local food bank run by a charity. Maura had used the van in her trade or business. The van has a FMV of $6,500; a cost of $31,000; and $27,000 depreciation claimed. What is the amount of Maura's charitable contribution deduction?

Gain recognized on the sale or exchange of property between related parties is capital if the property is subject to depreciation in the hands of the transferee.

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.

Costs of tangible personal business property which are expensed under Sec. 179 are subject to recapture if the property is converted to nonbusiness use before the end of the MACRS recovery period.

A corporation sold a warehouse during the current year. The straight-line depreciation method was used. Information about the building is presented below: How much gain should the corporation report as section 1231 gain?

Douglas bought office furniture two years and four months ago for $25,000 to use in his business and elected to expense all of it under Sec. 179. Depreciation of $3,500 would have been taken under the MACRS rules. If Douglas converts the furniture to nonbusiness use today, Douglas must

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.

If no gain is recognized in a nontaxable like-kind exchange involving Sec. 1245 or Sec. 1250 property, the recapture potential carries over to the replacement property.