Question 1

Which of the following gains does not result solely in an ordinary gain or loss?

Accepted Answer

The sale of equipment where the gain realized exceeds the accumulated depreciation does not result solely in an ordinary gain or loss because the portion of the gain exceeding the accumulated depreciation is treated as a Section 1231 gain, which can be taxed at a more favorable rate than ordinary income under certain conditions.

Question 2

Which of the following sections recaptures or recharacterizes only corporate taxpayers' gains?

Accepted Answer

Section 291 specifically deals with the recapture of depreciation for corporate taxpayers, recharacterizing certain gains as ordinary income rather than capital gains.

Question 3

Which of the following does not ultimately result in a capital gain or loss?

Accepted Answer

The sale of inventory results in ordinary income or loss, not a capital gain or loss. Capital gains or losses are realized from the sale of capital assets, not inventory which is considered an ordinary asset in the course of business.

Question 4

Bozeman sold equipment that it uses in its business for $80,000.Bozeman bought the equipment two years ago for $75,000 and has claimed $20,000 of depreciation expense.What is the amount and character of Bozeman's gain or loss?

Accepted Answer

The answer of Bozeman sold equipment that it uses in...

Question 5

Which of the following sections does not recapture or recharacterize a taxpayer's gain?

Accepted Answer

Sections §1239, §1250, §1245, and §291 all involve specific rules for recapturing or recharacterizing a taxpayer's gain under certain circumstances, indicating that none of the choices listed are sections that do not recapture or recharacterize a taxpayer's gain.

Question 6

Which of the following is true regarding depreciation recapture?

Accepted Answer

Depreciation recapture changes the character of a gain from capital gain to ordinary income. It does not affect losses or the amount of the gain. It applies to certain types of assets such as real property and depreciable personal property.

Question 7

The sale for more than the original cost basis (before depreciation)of machinery used in a trade or business and held for more than one year results in which of the following types of gain or loss?

Accepted Answer

The sale of machinery used in a trade or business, held for more than one year, and sold for more than its original cost basis results in §1245 recapture (to the extent of depreciation taken) which is treated as ordinary income, and any gain in excess of the recaptured amount is treated as §1231 gain, which can be taxed as capital gain if certain conditions are met.

Question 8

Sumner sold equipment that it uses in its business for $30,000.Sumner bought the equipment a few years ago for $80,000 and has claimed $40,000 of depreciation expense.Assuming that this is Sumner's only disposition during the year, what is the amount and character of Sumner's gain or loss?

Accepted Answer

The calculation of gain or loss on the sale of property involves comparing the amount received from the sale to the adjusted basis of the property. The adjusted basis is the original cost of the property minus any depreciation claimed. In this case, Sumner sold the equipment for $30,000, and the adjusted basis of the property is $80,000 - $40,000 = $40,000.

Since Sumner sold the property for less than the adjusted basis, there is a loss on the sale. However, the type of loss depends on the nature of the property sold. In this case, the property is considered to be §1231 property since it is used in a trade or business.

Therefore, the loss is classified as a §1231 loss, which can be used to offset any other gains or losses from the sale of §1231 property during the year.

Question 9

What is the character of land used in an active trade or business for two years?

Accepted Answer

§1231 property includes depreciable property and real property (like buildings and equipment) used in a trade or business and held for more than one year.

Question 10

The sale at a loss of machinery that was used in a trade or business and held for more than one year results in which of the following types of loss?

Accepted Answer

§1231 loss applies to the sale or exchange of property used in a trade or business that is held for more than one year. In this case, the machinery was used in a trade or business and held for more than one year, so the loss incurred would be §1231 loss.

Question 11

The sale of computer equipment used in a trade or business for nine months results in which of the following types of gain or loss?

Accepted Answer

The answer of The sale of computer equipment used in...

Question 12

Foreaker LLC sold a piece of land that it uses in its business for $52,000.Foreaker bought the land two years ago for $42,500.What is the amount and character of Foreaker's gain?

Accepted Answer

The gain on the sale of the land is $9,500 ($52,000 - $42,500). Since Foreaker held the land for more than one year, it is a long-term capital gain. Also, since the land was used in Foreaker's business, it is classified as section 1231 property, which means the gain is treated as long-term capital gain for tax purposes. Therefore, the correct answer is $9,500 §1231.

Question 13

Brad sold a rental house that he owned for $250,000.Brad bought the rental house five years ago for $225,000 and has claimed $50,000 of depreciation expense.What is the amount and character of Brad's gain or loss?

Accepted Answer

Brad's gain is calculated by subtracting the adjusted basis (original cost minus depreciation) from the selling price. The adjusted basis is $225,000 - $50,000 = $175,000. Selling price ($250,000) minus adjusted basis ($175,000) equals a $75,000 gain. This gain is split into two parts: $25,000 §1231 gain (the difference between the selling price and the original cost) and $50,000 unrecaptured §1250 gain (the recapture of depreciation claimed).

Question 14

Which of the following transactions results solely in §1245 gain?

Accepted Answer

Section 1245 gain applies to the depreciation recapture on the sale of depreciable property, such as machinery. When the accumulated depreciation exceeds the gain realized, the entire gain is treated as ordinary income under §1245, rather than capital gain.

Question 15

Leesburg sold a machine for $2,200 on November 10^th of the current year.The machine was purchased for $2,600.Leesburg had taken $1,200 of depreciation deductions on the machine through the date of the sale.What is Leesburg's gain or loss realized on the machine?

Accepted Answer

The answer of Leesburg sold a machine for $2,200 on...

Question 16

Butte sold a machine to a machine dealer for $50,000.Butte bought the machine for $55,000 several years ago and has claimed $12,500 of depreciation expense on the machine.What is the amount and character of Butte's gain or loss?

Accepted Answer

The answer of Butte sold a machine to a machine...

Question 17

Which of the following results in an ordinary gain or loss?

Accepted Answer

The sale of inventory results in an ordinary gain or loss. The other choices may result in capital gains or losses, which are subject to different tax rates and treatment.

Question 18

Which of the following is not a §1245 asset if held for more than one year?

Accepted Answer

Land is not a §1245 asset, regardless of the holding period, as it is not depreciable property. The other choices are all depreciable assets and would be considered §1245 assets if held for more than one year.

Question 19

The sale of land held for investment results in which of the following types of gain or loss?

Accepted Answer

The sale of land held for investment results in a capital gain or loss, as it is not used in a trade or business and is not subject to depreciation recapture.

Question 20

Bateman Corporation sold an office building that it used in its business for $800,000.Bateman bought the building 10 years ago for $600,000 and has claimed $200,000 of depreciation expense.What is the amount and character of Bateman's gain or loss?

Accepted Answer

The answer of Bateman Corporation sold an office building that...

Quiz 11: Property Dispositions

Which of the following gains does not result solely in an ordinary gain or loss?

Which of the following sections recaptures or recharacterizes only corporate taxpayers' gains?

Which of the following does not ultimately result in a capital gain or loss?

Bozeman sold equipment that it uses in its business for $80,000.Bozeman bought the equipment two years ago for $75,000 and has claimed $20,000 of depreciation expense.What is the amount and character of Bozeman's gain or loss?

Which of the following sections does not recapture or recharacterize a taxpayer's gain?

Which of the following is true regarding depreciation recapture?

The sale for more than the original cost basis (before depreciation) of machinery used in a trade or business and held for more than one year results in which of the following types of gain or loss?

Sumner sold equipment that it uses in its business for $30,000.Sumner bought the equipment a few years ago for $80,000 and has claimed $40,000 of depreciation expense.Assuming that this is Sumner's only disposition during the year, what is the amount and character of Sumner's gain or loss?

What is the character of land used in an active trade or business for two years?

The sale at a loss of machinery that was used in a trade or business and held for more than one year results in which of the following types of loss?

The sale of computer equipment used in a trade or business for nine months results in which of the following types of gain or loss?

Foreaker LLC sold a piece of land that it uses in its business for $52,000.Foreaker bought the land two years ago for $42,500.What is the amount and character of Foreaker's gain?

Brad sold a rental house that he owned for $250,000.Brad bought the rental house five years ago for $225,000 and has claimed $50,000 of depreciation expense.What is the amount and character of Brad's gain or loss?

Which of the following transactions results solely in §1245 gain?

Leesburg sold a machine for $2,200 on November 10^th of the current year.The machine was purchased for $2,600.Leesburg had taken $1,200 of depreciation deductions on the machine through the date of the sale.What is Leesburg's gain or loss realized on the machine?

Butte sold a machine to a machine dealer for $50,000.Butte bought the machine for $55,000 several years ago and has claimed $12,500 of depreciation expense on the machine.What is the amount and character of Butte's gain or loss?

Which of the following results in an ordinary gain or loss?

Which of the following is not a §1245 asset if held for more than one year?

The sale of land held for investment results in which of the following types of gain or loss?

Bateman Corporation sold an office building that it used in its business for $800,000.Bateman bought the building 10 years ago for $600,000 and has claimed $200,000 of depreciation expense.What is the amount and character of Bateman's gain or loss?

Quiz 11: Property Dispositions

Which of the following gains does not result solely in an ordinary gain or loss?

Which of the following sections recaptures or recharacterizes only corporate taxpayers' gains?

Which of the following does not ultimately result in a capital gain or loss?

Bozeman sold equipment that it uses in its business for $80,000.Bozeman bought the equipment two years ago for $75,000 and has claimed $20,000 of depreciation expense.What is the amount and character of Bozeman's gain or loss?

Which of the following sections does not recapture or recharacterize a taxpayer's gain?

Which of the following is true regarding depreciation recapture?

The sale for more than the original cost basis (before depreciation) of machinery used in a trade or business and held for more than one year results in which of the following types of gain or loss?

Sumner sold equipment that it uses in its business for $30,000.Sumner bought the equipment a few years ago for $80,000 and has claimed $40,000 of depreciation expense.Assuming that this is Sumner's only disposition during the year, what is the amount and character of Sumner's gain or loss?

What is the character of land used in an active trade or business for two years?

The sale at a loss of machinery that was used in a trade or business and held for more than one year results in which of the following types of loss?

The sale of computer equipment used in a trade or business for nine months results in which of the following types of gain or loss?

Foreaker LLC sold a piece of land that it uses in its business for $52,000.Foreaker bought the land two years ago for $42,500.What is the amount and character of Foreaker's gain?

Brad sold a rental house that he owned for $250,000.Brad bought the rental house five years ago for $225,000 and has claimed $50,000 of depreciation expense.What is the amount and character of Brad's gain or loss?

Which of the following transactions results solely in §1245 gain?

Leesburg sold a machine for $2,200 on November 10th of the current year.The machine was purchased for $2,600.Leesburg had taken $1,200 of depreciation deductions on the machine through the date of the sale.What is Leesburg's gain or loss realized on the machine?

Butte sold a machine to a machine dealer for $50,000.Butte bought the machine for $55,000 several years ago and has claimed $12,500 of depreciation expense on the machine.What is the amount and character of Butte's gain or loss?

Which of the following results in an ordinary gain or loss?

Which of the following is not a §1245 asset if held for more than one year?

The sale of land held for investment results in which of the following types of gain or loss?

Bateman Corporation sold an office building that it used in its business for $800,000.Bateman bought the building 10 years ago for $600,000 and has claimed $200,000 of depreciation expense.What is the amount and character of Bateman's gain or loss?

Leesburg sold a machine for $2,200 on November 10^th of the current year.The machine was purchased for $2,600.Leesburg had taken $1,200 of depreciation deductions on the machine through the date of the sale.What is Leesburg's gain or loss realized on the machine?