Question 1

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?

Accepted Answer

The gain realized is the $2,200 amount realized less the $1,400 ($2,600 - $1,200) adjusted basis.

Question 2

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?

Accepted Answer

§1245 recaptures the lesser of depreciation taken ($12,500) or gain ($7,500) as ordinary income. Any remaining gain would be §1231 gain.

Question 3

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

Accepted Answer

Inventory is always an ordinary asset. Sale of a §1231 asset can generate either ordinary gain or capital loss.

Question 4

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

Accepted Answer

Land and depreciable assets used in a trade or business for more than one year are §1231 assets.

Question 5

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

Accepted Answer

Depreciation recapture, resulting in ordinary income, is limited to accumulated depreciation.

Question 6

Which of the following is not a §1245 asset if held for more than one year?

Accepted Answer

Land is not subject to cost recovery and is a §1231 asset, but not a §1245 asset.

Question 7

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?

Accepted Answer

Unrecaptured §1250 recaptures the lesser of depreciation taken ($50,000) or gain ($75,000). This amount is then taxed at no more than 25%. The remaining $25,000 gain would be §1231 gain.

Question 8

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?

Accepted Answer

Land used in a trade or business is a §1231 asset.

Question 9

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

Accepted Answer

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

Question 10

Which of the following sections does not recapture or recharacterize a taxpayer's gain?

Accepted Answer

All of these sections recaptures or recharacterizes a taxpayer's gain.

Question 11

Which of the following does not ultimately result in a capital gain or loss?

Accepted Answer

Inventory is always an ordinary asset because it is held in the ordinary course of a trade or business.

Question 12

Which of the following is true regarding depreciation recapture?

Accepted Answer

Depreciation recapture changes the character of the gain from §1231 to ordinary.

Question 13

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?

Accepted Answer

There is no depreciation recapture when a §1231 asset is sold at a loss.

Question 14

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

Accepted Answer

For corporate taxpayers only, §291 recaptures 20% of the lesser of gain realized or accumulated depreciation on real property.

Question 15

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?

Accepted Answer

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

Question 16

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?

Accepted Answer

Assets used in a trade or business and held for more than one year are §1231 assets. Losses recognized do not require depreciation recapture.

Question 17

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?

Accepted Answer

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

Question 18

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?

Accepted Answer

§1245 recaptures the lesser of depreciation taken ($20,000) or gain ($25,000) as ordinary income. The remaining $5,000 gain would be §1231 gain.

Question 19

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

Accepted Answer

§1245 gain is the lesser of gain realized or accumulated depreciation.

Question 20

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

Accepted Answer

Assets held for investment generate capital gains or losses.

Quiz 11: Property Dispositions

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?

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?

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?

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

Which of the following is not a §1245 asset if held for more than one year?

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?

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?

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

Which of the following is true regarding depreciation recapture?

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 sections recaptures or recharacterizes only corporate taxpayer's gains?

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?

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?

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?

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 transactions results solely in §1245 gain?

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

Quiz 11: Property Dispositions

Leesburg sold a machine for $2,200 on November 10th 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?

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?

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?

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

Which of the following is not a §1245 asset if held for more than one year?

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?

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?

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

Which of the following is true regarding depreciation recapture?

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 sections recaptures or recharacterizes only corporate taxpayer's gains?

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?

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?

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?

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 transactions results solely in §1245 gain?

The sale of land held for investment 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?