Question 1

Which of the following sections recaptures or recharacterizes only corporate taxpayer's gains?
A) §291.
B) §1239.
C) §1245.
D) Unrecaptured §1250 gains.
E) None of the choices are correct.

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 2

Which of the following gains does not result solely in an ordinary gain or loss?
A) Sale of equipment held for less than a year.
B) Sale of inventory.
C) Sale of equipment where the gain realized exceeds the accumulated depreciation.
D) Sale of equipment where the accumulated depreciation exceeds the gain realized.
E) None of the choices are correct.

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 as a long-term capital gain if certain conditions are met.

Question 3

Bateman Corporation sold an office building that it used in its business for $800,000.Bateman bought the building ten 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?
A) $40,000 ordinary and $360,000 §1231 gain.
B) $200,000 ordinary and $200,000 §1231 gain.
C) $400,000 ordinary gain.
D) $400,000 capital gain.
E) None of the choices are correct.

Accepted Answer

For corporations, §291 recapture is 20 percent of the lesser of depreciation taken or the recognized gain as ordinary income. The remaining gain is §1231.

Question 4

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?
A) $10,000 §1231 loss.
B) $10,000 §1245 loss.
C) $50,000 ordinary loss.
D) $10,000 capital loss.
E) None of the choices are correct.

Accepted Answer

The selling price of $30,000 minus the adjusted basis of $40,000 ($80,000 original cost minus $40,000 in depreciation claimed) results in a loss of $10,000. Since this is a disposition of business property, it is considered a §1231 loss.

Question 5

Which of the following results in an ordinary gain or loss?
A) Sale of a machine at a gain.
B) Sale of stock held for investment.
C) Sale of a §1231 asset.
D) Sale of inventory.
E) None of the choices are correct.

Accepted Answer

The sale of inventory results in an ordinary gain or loss. The other options may result in different types of gains or losses such as capital gains or §1231 gains.

Question 6

What is the character of land used in an active trade or business for two years?
A) Capital.
B) Ordinary.
C) §1231.
D) Investment.
E) None of the choices are correct.

Accepted Answer

Section 1231 of the U.S. Internal Revenue Code classifies property used in a trade or business and held for more than one year as §1231 property. This classification allows for the favorable treatment of gains, where they are taxed at capital gains rates, and losses, which can be deducted as ordinary losses.

Question 7

The sale of machinery at a loss that was used in a trade or business and held for more than one year results in the following type of loss?
A) Capital.
B) §291.
C) §1231.
D) §1245.
E) None of the choices are correct.

Accepted Answer

According to section 1231 of the Internal Revenue Code, the sale of machinery used in a trade or business and held for more than one year results in a §1231 loss. This type of loss can be treated as either an ordinary loss or a capital loss on a taxpayer's tax return, depending on whether the overall §1231 gains or losses for the year are positive or negative.

Question 8

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?
A) $25,000 §1231 gain.
B) $20,000 ordinary gain, and $5,000 §1231 gain.
C) $5,000 ordinary gain, and $20,000 §1231 gain.
D) $25,000 capital gain.
E) None of the choices are correct.

Accepted Answer

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

Question 9

Which of the following sections does not recapture or recharacterize a taxpayer's gain?
A) §1239.
B) §1250.
C) §1245.
D) §291.
E) None of the choices are correct.

Accepted Answer

All four sections listed (§1239, §1250, §1245, and §291) involve recapturing or recharacterizing a taxpayer's gain, so none of them would be the correct choice for this question. Therefore, the correct answer is E, "None of the choices are correct."

Question 10

Which of the following does NOT ultimately result in a capital gain or loss?
A) Sale of a personal use asset.
B) Sale of inventory.
C) Gain on equipment used in a trade or business held for more than one year, if it is the only asset sale during the year.
D) Sale of capital stock in another company.
E) None of the choices are correct.

Accepted Answer

The sale of inventory results in ordinary income or loss, not a capital gain or loss, as inventory is not a capital asset.

Question 11

The sale of machinery for more than the original cost basis (before depreciation),used in a trade or business,and held for more than one year results in the following types of gain or loss?
A) Capital and Ordinary.
B) Ordinary only.
C) Capital and §1231.
D) §1245 and §1231.
E) None of the choices are correct.

Accepted Answer

Because the sales price exceeds the original basis, §1245 depreciation recapture and §1231 gain will be recognized.

Question 12

Which of the following transactions results solely in §1245 gain?
A) Sale of machinery held for less than one year.
B) Sale of machinery held for more than one year and where the gain realized exceeds the accumulated depreciation.
C) Sale of machinery held for more than one year and where the accumulated depreciation exceeds the gain realized.
D) Sale of land held for more than one year and where the amount realized exceeds the adjusted basis.
E) None of the choices are correct.

Accepted Answer

Section 1245 property is defined as depreciable personal property, including tangible personal property and certain intangible personal property, which has been or could have been subject to depreciation or amortization. When this type of property is sold, any gain realized is treated as ordinary income to the extent of the depreciation allowed or allowable on the property. Therefore, a sale of machinery held for more than one year where the accumulated depreciation exceeds the gain realized would result solely in §1245 gain.

Question 13

Which of the following is true regarding depreciation recapture?
A) Changes the character of a loss.
B) Changes the character of a gain.
C) Changes the amount of a gain.
D) Only applies to ordinary assets.
E) None of the choices are correct.

Accepted Answer

Depreciation recapture changes the character of a gain from capital gain to ordinary income.

Question 14

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?
A) $9,500 §1221.
B) $9,500 §1231.
C) $9,500 §1245.
D) $9,500 §1250.
E) None of the choices are correct.

Accepted Answer

Since Foreaker used the land in its business and held it for more than one year, the gain is classified as §1231 gain. The gain is calculated as the selling price of $52,000 minus the cost basis of $42,500, which equals $9,500. Therefore, the correct answer is choice (B) $9,500 §1231.

Question 15

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?
A) $7,500 §1231 loss.
B) $5,000 §1231 loss.
C) $7,500 ordinary gain.
D) $7,500 capital gain.
E) None of the choices are correct.

Accepted Answer

The selling price of the machine is $50,000 and its adjusted basis is $42,500 ($55,000 - $12,500). Therefore, there is a gain of $7,500 ($50,000 - $42,500). Since the machine was held for more than one year, the gain is a long-term capital gain. However, since Butte's business involves selling machinery, the gain would be considered ordinary income under §1245. Therefore, the correct answer is choice C, $7,500 ordinary gain.

Question 16

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?
A) $25,000 ordinary and $50,000 unrecaptured §1250 gain.
B) $25,000 §1231 gain and $50,000 unrecaptured §1250 gain.
C) $75,000 ordinary gain.
D) $75,000 capital gain.
E) None of the choices are correct.

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 17

Which of the following is NOT a §1245 asset if held for more than one year?
A) Machinery.
B) Automobile.
C) Business cell phone.
D) Land.
E) None of the choices are correct.

Accepted Answer

Land is not a §1245 asset; it is considered a §1250 asset if it is depreciable real property, but land itself is not subject to depreciation recapture under §1245.

Question 18

The sale of land held for investment results in the following type of gain or loss?
A) Capital.
B) Ordinary.
C) §1231.
D) §1245.
E) None of the choices are correct.

Accepted Answer

The sale of land held for investment results in a capital gain or loss.

Question 19

The sale of computer equipment used in a trade or business for 9 months results in the following type of gain or loss?
A) Capital.
B) Ordinary.
C) §1231.
D) §1245.
E) None of the choices are correct.

Accepted Answer

Assets used in a trade or business and held for one year or less are ordinary assets.

Question 20

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? A) $800 gain. B) $1,000 gain. C) $1,200 loss. D) $1,400 loss. E) None of the choices are correct.

Accepted Answer

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

Quiz 3: Property Dispositions

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

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

Bateman Corporation sold an office building that it used in its business for $800,000.Bateman bought the building ten 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?

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?

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

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

The sale of machinery at a loss that was used in a trade or business and held for more than one year results in the following type of 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 does NOT ultimately result in a capital gain or loss?

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

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

Which of the following is true regarding depreciation recapture?

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?

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?

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 is NOT a §1245 asset if held for more than one year?

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

The sale of computer equipment used in a trade or business for 9 months results in the following type of 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?