Question 1

An individual taxpayer sells a business building placed in service five years ago and recognizes a gain. This is the taxpayer's first and only sale of Sec. 1231 property. Since the gain will be treated as LTCG, the details of the sale should be reported on Schedule D of Form 1040.

Accepted Answer

The answer of An individual taxpayer sells a business building...

Question 2

The exchange of land held for investment purposes for stock in a real estate holding corporation held as an investment qualifies for like- kind treatment.

Accepted Answer

The answer of The exchange of land held for investment...

Question 3

Four years ago, Otto purchased farmland for $600,000 and spent an additional $40,000 on soil and water conservation which was deducted in the year of purchase. Otto has just sold the land for $900,000. How much of the $300,000 gain will be treated as ordinary income?

Accepted Answer

The $40,000 spent on soil and water conservation was deducted as an expense, reducing the basis of the land. Upon sale, this amount is recaptured as ordinary income.

Question 4

Melissa acquired oil and gas properties for $600,000. During 2016, she elected to expense the $180,000 of IDC. To depletion allowed was $50,000. At the end of the current year, Melissa sells the property for $700,000. a. What is the amount of and nature of her gain using the facts above?
B) What is the amount of and nature of her gain assuming that she sold the property for $850,000?

Accepted Answer

The answer of Melissa acquired oil and gas properties for...

Question 5

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 answer of Gain recognized on the sale or exchange...

Question 6

A taxpayer exchanges an office building held as an investment asset for an office building to be used in her business. The exchange will qualify as like- kind.

Accepted Answer

The exchange of an office building held as an investment asset for an office building to be used in a business can qualify as a like-kind exchange under Section 1031 of the Internal Revenue Code, provided certain requirements are met.

Question 7

If an exchange qualifies as a like- kind exchange, nonrecognition of gain or loss is elective.

Accepted Answer

The answer of If an exchange qualifies as a like-...

Question 8

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?

Accepted Answer

The answer of Maura makes a gift of a van...

Question 9

Pete sells equipment for $15,000 to Marcel, his son. The equipment cost $20,000 and has accumulated depreciatio
$12,000. Marcel will use the equipment in his business.
a. What is the amount and character of Pete's gain on the sale?
b. How does your answer change if the sales price is $22,000?

Accepted Answer

The answer of Pete sells equipment for $15,000 to Marcel,...

Question 10

Jacqueline dies while owning a building with a $1,000,000 FMV. The building is classified as Sec. 1245 property acquired in 1985 for $850,000. Cost- recovery deductions of $850,000 have been claimed. Pam inherits the proper
a. What is the amount of Pam's basis in the property?
b. What is the amount of cost- recovery deductions that Pam must recover if she immediately sells the building

Accepted Answer

The answer of Jacqueline dies while owning a building with...

Question 11

Cobra Inc. sold stock for a $25,000 loss five years ago. It has been carrying over the capital loss for five years, and the loss will expire at the end of this year because Cobra has not had any capital gains. Earlier this year Cobra sold a parcel of land held four years for business use and will recognize a $30,000 gain. Cobra is thinking about selling some machinery used in its business for the past three years. During this time technology has dramatically changed so Cobra will recognize a $32,000 loss on the sale of the machinery. Cobra is trying to decide whether to sell the machinery at year- end or early next year. Cobra is profitable and has a consistent marginal tax rate of 21%. When should Cobra sell the equipment?

Accepted Answer

The answer of Cobra Inc. sold stock for a $25,000...

Question 12

Echo Corporation plans to sell a small building to Nate, its 65% shareholder. The building was placed in service five years ago. An independent appraisal will be obtained to set the selling price at an appropriate market price, and a $50,000 gain is expected to result. The only asset previously sold by Echo was a stock investment five years ago which resulted in a $40,000 loss. If the sale of the building closes before year- end, the gain on the building will allow recognition of the capital loss carryover before it expires.

Accepted Answer

The answer of Echo Corporation plans to sell a small...

Question 13

Heather purchased undeveloped land to drill for oil and gas. She spent $800,000 on intangible drilling costs during the year of purchase, which she elected to immediately deduct. During the three years of the well's operation, Heather deducted $1.2 million of cost depletion. Heather has sold the property for a $3 million gain. The gain will be treated as

Accepted Answer

The answer of Heather purchased undeveloped land to drill for...

Question 14

Clarise bought a building three years ago for $180,000 to use in her business. The straight- line method of depreciation was used and $15,000 of depreciation deductions were allowed. During the current year, Clarise sells the building to her wholly owned corporation for $235,000. The tax results to Clarise are

Accepted Answer

The answer of Clarise bought a building three years ago...

Question 15

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?

Accepted Answer

The answer of A taxpayer purchased a factory building in...

Question 16

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

Accepted Answer

The furniture was expensed under Sec. 179, so the full $25,000 was deducted in the year of purchase. When the furniture is converted to nonbusiness use, the taxpayer must include the lesser of the fair market value or the adjusted basis in gross income. The adjusted basis is $0, so the taxpayer must include $21,500 in gross income in the year of conversion.

Question 17

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

According to IRS rules, if tangible personal property which was expensed under Sec. 179 is converted to nonbusiness use before the end of the MACRS recovery period, the expenses that were deducted under Sec. 179 are subject to recapture. This means that the amount deducted must be added back as income in the year of the conversion.

Question 18

All of the following are considered related parties for purposes of Sec. 1239 recapture with the exception of

Accepted Answer

Under Sec. 1239, related parties include individuals and entities where the individual owns more than 50% of the entity. In option D, the individual only has a one-fourth interest, which is not more than 50%.

Question 19

Realized gain or loss must be recognized unless a specific Code section provides for nonrecognition treatment.

Accepted Answer

This is true according to the general tax principle that realizations trigger tax consequences unless a specific exemption or deferral rule applies.

Question 20

Brian purchased some equipment in 2018 which he intends to use in his trade or business. He approaches you to assist him in planning for the ultimate disposal of the asset-whether it be by sale, charitable contribution to the local university, gift to his sister for use in her business, or some other means. Discuss the tax considerations.

Accepted Answer

The answer of Brian purchased some equipment in 2018 which...

Quiz 16: Tax Deductions and Travel Expenses for Employees and Self-Employed Individuals