Question 1

Maria acquired a personal computer to use 100% in her business for $6,000. She took MACRS deductions of $2,880 before selling it in current year. Determine the amount and character of the gain (loss) recognized on the sale of the computer, assuming a sales price that differs in each of the three independent situations:

Accepted Answer

The answer of Maria acquired a personal computer to use...

Question 2

Classify the gain or loss on each of George's assets listed below using the following codes. Note: a code may be used once, more than once, or not at all.
-George sells a fully depreciated air compressor that cost $975 for $650. The compressor was used to operate air tools.

Accepted Answer

The gain on the sale of a fully depreciated asset used in a business, like an air compressor for operating air tools, is classified as Section 1245 gain. This section recaptures depreciation as ordinary income up to the amount of the gain realized on the sale.

Question 3

Dragonian Corporation sells a depreciable asset. Dragonian paid $50,000 for the asset. Accelerated depreciation on the asset is $12,000 up to the date of sale. Straight-line depreciation is $8,000. Determine the amount and character of the gain (loss) on the sale under each of the following assumptions:
a.The asset is equipment. Dragonian deducted the maximum depreciation and the sales price is $44,000.
b.The asset is an office building purchased in 1984. Dragonian deducted the maximum depreciation and the sales price is $54,000.
c.The asset is an office building purchased in 2006. Dragonian deducted straight-line depreciation and the sales price is $54,000.

Accepted Answer

The answer of Dragonian Corporation sells a depreciable asset. Dragonian...

Question 4

Classify the gain or loss on each of George's assets listed below using the following codes. Note: a code may be used once, more than once, or not at all.
-George's construction company completed 5 homes during February 2017. He sells one of the homes in March 2018 at a $37,000 gain.

Accepted Answer

The answer of Classify the gain or loss on each...

Question 5

Watson sells equipment he used in his business. The equipment cost $50,000 and had an adjusted basis of $32,000 on the date of sale.
a.If Watson sells the equipment for $23,000, what is the amount and character of the recognized gain or loss?
b.If Watson sells the equipment for $55,000 what is the amount and character of the recognized gain or loss?

Accepted Answer

The answer of Watson sells equipment he used in his...

Question 6

Classify the gain or loss on each of George's assets listed below using the following codes. Note: a code may be used once, more than once, or not at all.
-George sells his personal use automobile at a loss of $4,300.

Accepted Answer

The loss on the sale of a personal use automobile is considered a nondeductible personal loss, hence it does not qualify for capital loss treatment or any other specific tax treatment listed.

Question 7

Classify the gain or loss on each of George's assets listed below using the following codes. Note: a code may be used once, more than once, or not at all.
-After using a house as his personal home for 20 years, George converts it in 2007 to an office building for use in his construction business. He sells the building at a $65,000 loss in 2018.

Accepted Answer

The loss on the sale of the building, which was converted from personal use to business use and then sold, is classified as Section 1231. This section applies to depreciable business property and real property used in a business, where gains can be treated as capital gains and losses as ordinary losses, providing a tax advantage.

Question 8

Milton has the following transactions related to his investments and his business during 2018:
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 (1) Stock purchased in 2004 is sold at a gain of $ \$ 2,000 $.
(2) Bonds purchased in 2018 are sold at a loss of $ \$ 7,000 $.
(3) A building used in his business is sold at a loss of $ \$ 6,000 $. The building had been purchased in 1997 and $ \$ 18,000 $ of depreciation had been taken on the buil ding.
(4) Equipment purchased in 2010 is sold at a gain of $ \$ 12,000 $. Depreciation of $ \$ 9,000 $ had been taken before the sale.
(5) A delivery van is destroyed in an accident. Milton realizes a loss of $ \$ 5,000 $ on the van. He uses the $ \$ 13,000 $ of insurance proceeds as a down payment on a new van costing $ \$ 28,000 $.
 
a.Determine the amount and character of each gain or loss.
b.Determine the effect of the gains and losses on Milton's 2018 adjusted gross income. You must present the calculations in proper form to receive full credit.

Accepted Answer

The answer of Milton has the following transactions related to...

Question 9

Classify the gain or loss on each of George's assets listed below using the following codes. Note: a code may be used once, more than once, or not at all.
-George sells land purchased in 1989 that he used to park construction equipment at a gain of $16,500.

Accepted Answer

The land used for business purposes and held for more than a year qualifies as a Section 1231 asset, resulting in a Section 1231 gain.

Question 10

Classify the gain or loss on each of George's assets listed below using the following codes. Note: a code may be used once, more than once, or not at all.
-George regularly invests unneeded business cash in Eli Lilly common stock. He has bought 200 shares of stock on May 1 of each year from 1987 through 2017. Because of an urgent need for cash, he sells 100 shares of the stock at an $850 gain on March 28, 2018. Because the stock is held in a brokerage account, he did not have any paper shares of stock to surrender. He merely told his broker to sell 100 shares.

Accepted Answer

The gain on the sale of the Eli Lilly common stock is considered a long-term capital gain since the shares were held for more than one year before being sold.

Question 11

What incentive provisions or preferential treatments exist for capital gains?

Accepted Answer

The answer of What incentive provisions or preferential treatments exist...

Question 12

Discuss the general differences between Section 1245 and Section 1250 property.

Accepted Answer

The answer of Discuss the general differences between Section 1245...

Question 13

Matt has a substantial portfolio of securities. As of December 2 of the current year, Matt has a net capital gain position of $22,000. Discuss Matt's optimal tax-planning strategy for capital gains and losses.

Accepted Answer

The answer of Matt has a substantial portfolio of securities....

Question 14

Classify the gain or loss on each of George's assets listed below using the following codes. Note: a code may be used once, more than once, or not at all.
-George's wife sells stock she purchased 10 months ago at a gain of $212.

Accepted Answer

The stock was held for less than one year, so the gain is classified as a short-term capital gain.

Question 15

Classify the gain or loss on each of George's assets listed below using the following codes. Note: a code may be used once, more than once, or not at all.
-On December 1, 2016, George paid $17,500 for a painting. On October 31, 2018, he sells the painting for $26,750.

Accepted Answer

The gain on the painting is classified as a collectible gain because paintings are considered collectibles, and the tax treatment for gains on the sale of collectibles differs from other types of capital assets. Since George held the painting for more than one year (from December 1, 2016, to October 31, 2018), the gain qualifies for long-term treatment, but it is specifically categorized under collectible gains due to the nature of the asset.

Question 16

Nicole has the following transactions related to her investments and her sole proprietorship during 2018:
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 (1) Stock that was purchased in 2010 is sold at a loss of $ \$ 12,000 $.
(2) Bonds that were purchased in 2018 are sold at a gain of $ \$ 6,000 $.
(3) A buil ding used in her business is sold at a gain of $ \$ 17,000 $. The building was purchased in 1997 and $ \$ 24,000 $ of depreciation had been taken on the building.
(4) Equipment purchased in 2010 is sold at a loss of $ \$ 16,000 $. Depreciati on of $ \$ 25,000 $ had been taken prior to the sale.
(5) A delivery van is destroyed in an accident. Nicole realizes a gain of $ \$ 5,000 $ on the van. She had deducted $ \$ 3,000 $ of depreciation on the van prior to the accident. She does not intend to replace the van.
 
a.Determine the character of each gain or loss:
b.Determine the effect of the gains and losses on Nicole's current-year adjusted gross income.?

Accepted Answer

The answer of Nicole has the following transactions related to...

Question 17

Discuss the general differences between Section 1245 and Section 1250 recapture provisions.

Accepted Answer

The answer of Discuss the general differences between Section 1245...

Question 18

Match each statement with the correct term below.
-Unrecaptured Section 1250 gain

Accepted Answer

Unrecaptured Section 1250 gain is taxed at a maximum rate of 25%.

Question 19

Explain why a taxpayer would ever consider using accelerated depreciation methods on personal property, given the provisions of Section 1245.

Accepted Answer

The answer of Explain why a taxpayer would ever consider...

Quiz 11: Property Dispositions

Classify the gain or loss on each of George's assets listed below using the following codes. Note: a code may be used once, more than once, or not at all. -George sells a fully depreciated air compressor that cost $975 for $650. The compressor was used to operate air tools.

Classify the gain or loss on each of George's assets listed below using the following codes. Note: a code may be used once, more than once, or not at all. -George's construction company completed 5 homes during February 2017. He sells one of the homes in March 2018 at a $37,000 gain.

Classify the gain or loss on each of George's assets listed below using the following codes. Note: a code may be used once, more than once, or not at all. -George sells his personal use automobile at a loss of $4,300.

Classify the gain or loss on each of George's assets listed below using the following codes. Note: a code may be used once, more than once, or not at all. -George sells land purchased in 1989 that he used to park construction equipment at a gain of $16,500.

What incentive provisions or preferential treatments exist for capital gains?

Discuss the general differences between Section 1245 and Section 1250 property.

Matt has a substantial portfolio of securities. As of December 2 of the current year, Matt has a net capital gain position of $22,000. Discuss Matt's optimal tax-planning strategy for capital gains and losses.

Classify the gain or loss on each of George's assets listed below using the following codes. Note: a code may be used once, more than once, or not at all. -George's wife sells stock she purchased 10 months ago at a gain of $212.

Classify the gain or loss on each of George's assets listed below using the following codes. Note: a code may be used once, more than once, or not at all. -On December 1, 2016, George paid $17,500 for a painting. On October 31, 2018, he sells the painting for $26,750.

Discuss the general differences between Section 1245 and Section 1250 recapture provisions.

Match each statement with the correct term below. -Unrecaptured Section 1250 gain

Explain why a taxpayer would ever consider using accelerated depreciation methods on personal property, given the provisions of Section 1245.