Question 1

Suzanne, an individual, began business four years ago and has never sold a §1231 asset. Suzanne owned each of the assets for several years. In the current year, Suzanne sold the following business assets:  Assuming Suzanne's marginal ordinary income tax rate is 35 percent, what is the character of the gains and losses and what affect do they have on Suzanne's tax liability?

Accepted Answer

The answer of Suzanne, an individual, began business four years...

Question 2

Sunshine LLC sold furniture for $75,000. Sunshine bought the furniture for $90,000 several years ago and has claimed $25,000 of depreciation expense on the machine. What is the amount and character of Sunshine's gain or loss?

Accepted Answer

The answer of Sunshine LLC sold furniture for $75,000. Sunshine...

Question 3

Sadie sold 10 shares of stock to her brother, George, for $500 sixteen months ago. Sadie had purchased the stock for $600 two years earlier. If George sells the stock for $700 six months later, what is the amount and character of his recognized gain or loss in thecurrent year?

Accepted Answer

George's holding period is 22 months (16 months from Sadie to George plus 6 months from George to the buyer). Since the holding period is more than 12 months, the gain is long-term capital gain. The amount of the gain is $700 - $500 = $200. However, since the stock was originally purchased by Sadie for $600, George's basis in the stock is $500. Therefore, the recognized gain is $700 - $600 = $100.

Question 4

Brandy sold a rental house that she owned for $150,000. Brandy bought the house four years ago for$140,000 and has claimed $25,000 of depreciation expense. What is the amount and character ofBrandy's gain or loss?

Accepted Answer

The answer of Brandy sold a rental house that she...

Question 5

Pelosi Corporation sold a parcel of land valued at $300,000. Its basis in the land was$250,000. For the land, Pelosi received $150,000 in cash in the current year and a note providing Pelosi with $150,000 in the subsequent year. What is Pelosi's recognized gain in the current and subsequent year, respectively?

Accepted Answer

Pelosi's recognized gain in the current year is the amount of cash received minus the basis in the land:
$150,000 - $250,000 = -$100,000
Since the result is negative, Pelosi has a loss in the current year and does not recognize any gain.

In the subsequent year, Pelosi receives the note valued at $150,000. This is treated as a payment on the sale of the land and triggers gain recognition based on the remaining gain:

Remaining gain = Selling price - Basis
Remaining gain = $300,000 - $250,000
Remaining gain = $50,000

Since Pelosi has not previously recognized any gain, the entire $50,000 is recognized in the subsequent year when Pelosi receives the note. Therefore, the recognized gain in the subsequent year is $50,000.

Question 6

Jessie sold a piece of land held for investment for $250,000. Jessie bought the land two years ago for $195,000. What is the amount and character of Jessie's gain?

Accepted Answer

The answer of Jessie sold a piece of land held...

Question 7

Buzz Corporation sold an office building that it used in its business for $500,000. Buzz bought the building ten years ago for $650,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Buzz's gain or loss?

Accepted Answer

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

Question 8

Which of the following is not true regarding installment sales?

Accepted Answer

Depreciation recapture is not deferred in an installment sale; it must be reported as income in the year of sale.

Question 9

Frederique sold furniture that she uses in her business for $15,000. Frederique bought the furniture a few years ago for $40,000 and has claimed $20,000 of depreciation expense. What is the amountand character of Frederique's gain or loss?

Accepted Answer

The answer of Frederique sold furniture that she uses in...

Question 10

Which of the following may qualify as an installment sale?

Accepted Answer

Only the sale of an asset used in a business at a gain may qualify as an installment sale. Land sold at a loss, sale of inventory at a gain, and sale of securities do not qualify for installment sale treatment.

Question 11

Alexandra sold equipment that she uses in her business for $100,000. Alexandra bought theequipment two years ago for $90,000 and has claimed $25,000 of depreciation expense. What is the amount and character of Alexandra's gain or loss?

Accepted Answer

The answer of Alexandra sold equipment that she uses in...

Question 12

Explain whether the sale of a machine used in a trade or business that is sold at a loss generates an ordinary or capital loss?

Accepted Answer

The answer of Explain whether the sale of a machine...

Question 13

Andrea sold a piece of machinery she used in her business for 9 months. The amount realized was$50,000 and the adjusted basis was $55,000. What is Andrea's gain or loss realized and what is the character of the gain or loss?

Accepted Answer

The answer of Andrea sold a piece of machinery she...

Question 14

Sandra sold some equipment for $10,000 in cash, $1,000 of office products, the buyer assumption of her $1,500 loan, and incurred selling expenses of $500. What is the Sandra's amount realized in the transaction?

Accepted Answer

The answer of Sandra sold some equipment for $10,000 in...

Question 15

Gainesville LLC sold the following business assets during the current year: (1) machinery, $20,000 cost basis, $4,000 depreciation, proceeds $22,000; (2) automobile, $15,000 cost basis, $12,000 depreciation, proceeds $7,000; (3) equipment, $15,000 cost basis, $10,000 depreciation, proceeds$4,000; (4) computer equipment, $35,000 cost basis, $16,000 depreciation, proceeds $15,000; (5) Winchester had unrecaptured §1231 losses of $5,000 in the prior 5 years. What is the amount and character of Winchester's gains and losses before the 1231 netting process?

Accepted Answer

The answer of Gainesville LLC sold the following business assets...

Question 16

Andrew, an individual, began business four years ago and has never sold a §1231 asset. Andrew owned each of the assets for several years. In the current year, Andrew sold the following business assets:  Assuming Andrew's marginal ordinary income tax rate is 30 percent, what is the character of the gains and losses and what affect do they have on Andrew's tax liability?

Accepted Answer

The answer of Andrew, an individual, began business four years...

Question 17

Which of the following is true regarding disallowed losses between related taxpayers?

Accepted Answer

The tax laws essentially treat related parties as the same taxpayer, which means that any disallowed losses between related parties cannot be claimed until the related party disposes of the asset to a third party. The holding period of the seller does not carry over to the buyer, and the seller's loss is not deferred until the buyer sells the assets. The related person may or may not receive a carryover basis, depending on the circumstances.

Question 18

Manassas purchased a computer several years ago for $2,200. On November 10th of the current year, the computer was worth $800. If $1,000 of depreciation deductions had been taken, what is Manassas' tax adjusted basis for the computer?

Accepted Answer

The answer of Manassas purchased a computer several years ago...

Question 19

Bull Run sold a computer for $1,200 on November 10th of the current year. The computer was purchased for $2,800. Bull Run had taken $1,000 of depreciation deductions. What is Bull Run's gain or loss realized on the computer?

Accepted Answer

The answer of Bull Run sold a computer for $1,200...

Question 20

Silver sold machinery to Gold, a related entity, which it used in its business for $55,000. Silverbought the equipment a few years ago for $50,000 and has claimed $15,000 of depreciation expense. What is the amount and character of Silver's gain?

Accepted Answer

The answer of Silver sold machinery to Gold, a related...

Quiz 11: Property Dispositions