Question 1

If § 1231 asset casualty gains and losses net to a gain, the gain is treated as a § 1231 gain.

Accepted Answer

If the net gains from § 1231 assets that were lost due to casualty, then the gain will be treated as a § 1231 gain.

Question 2

Section 1231 property generally includes certain purchased intangible assets (such as patents and goodwill) that are eligible for amortization and held for more than one year.

Accepted Answer

Section 1231 property includes certain purchased intangible assets that are eligible for amortization and held for more than one year, including patents and goodwill.

Question 3

The maximum § 1245 depreciation recapture generally equals the accumulated depreciation.

Accepted Answer

The maximum § 1245 depreciation recapture generally equals the accumulated depreciation, which is the total amount of depreciation that has been claimed and deducted over the life of the asset.

Question 4

A sheep must be held more than 18 months to qualify as a § 1231 asset.

Accepted Answer

A sheep held for breeding purposes is considered a § 1231 asset if it is held for more than 12 months, not 18 months.

Question 5

Once § 1231 gains are netted against § 1231 losses, if the gains exceed the losses, the net gain is offset by the "lookback" nonrecaptured § 1231 losses.

Accepted Answer

This is true according to the rules of tax law regarding § 1231 gains and losses. Any net gain from § 1231 gains is first offset by any nonrecaptured § 1231 losses from the previous five years before being subject to taxation.

Question 6

Involuntary conversion gains may be deferred if the proceeds of the involuntary conversion are reinvested.

Accepted Answer

This statement is true. Involuntary conversion gains, such as a gain from a casualty or theft, can be deferred if the proceeds are reinvested in qualified replacement property within a specific time period. This is known as a 1033 exchange.

Question 7

An individual business taxpayer owns land on which he grows trees for logging. The land has been held more than 10 years and the trees growing on the land were planted eight years ago. Normally, the timber would be inventory for this taxpayer, but the tax law allows the taxpayer to elect to treat cutting the timber as the disposition of a § 1231 asset.

Accepted Answer

The taxpayer can elect to treat the cutting of timber as the disposition of a § 1231 asset, even though the timber would normally be considered inventory. This is based on the fact that the land has been held for more than 10 years and the trees have been growing for at least 8 years.

Question 8

Casualty gains and losses from nonpersonal use assets are not netted against casualty gains and losses from personal use assets.

Accepted Answer

Casualty gains and losses from nonpersonal use assets, such as rental or business property, are treated separately from casualty gains and losses from personal use assets, such as a personal residence or vehicle. They are not netted against each other.

Question 9

Section 1231 property generally does not include accounts receivables arising in the ordinary course of business.

Accepted Answer

Section 1231 property includes tangible and intangible property used in a trade or business, but accounts receivables are specifically excluded from this definition unless they are related to the sale of inventory or other property held for sale to customers. Otherwise, accounts receivables are considered ordinary income assets.

Question 10

The Code contains two major depreciation recapture provisions: § 1245 and § 1250.

Accepted Answer

The Code contains two major depreciation recapture provisions: § 1245 and § 1250.

Question 11

Section 1245 applies to amortizable § 197 intangible assets.

Accepted Answer

Section 1245 of the Internal Revenue Code applies to tangible and intangible personal property subject to depreciation or amortization, including § 197 intangible assets. Therefore, the statement is true.

Question 12

Rental use depreciable machinery held more than 12 months is an example of a § 1231 asset.

Accepted Answer

Rental use depreciable machinery held more than 12 months is a type of property that is used in a trade or business and is held for more than one year, which qualifies it as a § 1231 asset for tax purposes.

Question 13

Nonrecaptured § 1231 losses from the six prior tax years may cause current year net § 1231 gain to be treated as ordinary income.

Accepted Answer

The answer of Nonrecaptured § 1231 losses from the six...

Question 14

Section 1231 property generally does not include artistic compositions.

Accepted Answer

Section 1231 property typically includes depreciable property and real property (like buildings and equipment) used in a trade or business and held for more than one year. Artistic compositions are not included in this category as they are considered intellectual property, not depreciable business property.

Question 15

Personal use property casualty gains and losses are not subject to the § 1231 rules.

Accepted Answer

Personal use property casualty gains and losses are not considered trade or business gains and losses, and thus are not subject to the § 1231 rules.

Question 16

For § 1245 recapture to apply, accelerated depreciation must have been taken on the property.

Accepted Answer

The answer of For § 1245 recapture to apply, accelerated...

Question 17

A personal use property casualty loss is generally deductible only to the extent it exceeds 10% of AGI.

Accepted Answer

According to the IRS, a personal use property casualty loss is generally deductible only to the extent it exceeds 10% of AGI.

Question 18

Section 1231 applies to the sale or exchange of business properties, but not to personal use activity casualties.

Accepted Answer

Section 1231 of the Internal Revenue Code specifically applies to the sale or exchange of business properties. It does not apply to personal use activity casualties, which are covered under different sections of the code.

Question 19

Section 1231 property includes nonpersonal use property where casualty gains exceed casualty losses for the taxable year.

Accepted Answer

Section 1231 property is defined as property used in a trade or business and held for more than one year. If the taxpayer has a net gain from the sale or exchange of section 1231 property, it is treated as long-term capital gain. However, if there is a net loss, it is treated as an ordinary loss. Additionally, if there are casualty gains that exceed casualty losses for the taxable year, nonpersonal use section 1231 property is included in the calculation.

Question 20

If there is a net § 1231 loss, it is treated as an ordinary loss.

Accepted Answer

According to the Internal Revenue Code, if there is a net § 1231 loss (which relates to the sale or exchange of property used in a trade or business), it is treated as an ordinary loss. This means the loss can be used to offset ordinary income, rather than being subject to the limitations that apply to capital losses.

Quiz 17: Property Transactions: 1231 and Recapture Provisions

If § 1231 asset casualty gains and losses net to a gain, the gain is treated as a § 1231 gain.

Section 1231 property generally includes certain purchased intangible assets (such as patents and goodwill) that are eligible for amortization and held for more than one year.

The maximum § 1245 depreciation recapture generally equals the accumulated depreciation.

A sheep must be held more than 18 months to qualify as a § 1231 asset.

Once § 1231 gains are netted against § 1231 losses, if the gains exceed the losses, the net gain is offset by the "lookback" nonrecaptured § 1231 losses.

Involuntary conversion gains may be deferred if the proceeds of the involuntary conversion are reinvested.

Casualty gains and losses from nonpersonal use assets are not netted against casualty gains and losses from personal use assets.

Section 1231 property generally does not include accounts receivables arising in the ordinary course of business.

The Code contains two major depreciation recapture provisions: § 1245 and § 1250.

Section 1245 applies to amortizable § 197 intangible assets.

Rental use depreciable machinery held more than 12 months is an example of a § 1231 asset.

Nonrecaptured § 1231 losses from the six prior tax years may cause current year net § 1231 gain to be treated as ordinary income.

Section 1231 property generally does not include artistic compositions.

Personal use property casualty gains and losses are not subject to the § 1231 rules.

For § 1245 recapture to apply, accelerated depreciation must have been taken on the property.

A personal use property casualty loss is generally deductible only to the extent it exceeds 10% of AGI.

Section 1231 applies to the sale or exchange of business properties, but not to personal use activity casualties.

Section 1231 property includes nonpersonal use property where casualty gains exceed casualty losses for the taxable year.

If there is a net § 1231 loss, it is treated as an ordinary loss.