Question 1

The adjusted basis is the cost basis less cost recovery deductions.

Accepted Answer

The adjusted basis is the original cost basis of an asset, adjusted for any deductions taken for depreciation, amortization, or depletion.

Question 2

Depreciation recapture changes both the amount and character of a gain.Depreciation recapture changes the character of the gain,not the amount.

Accepted Answer

Depreciation recapture does not change the amount of gain, but rather changes the character of the gain from capital gain to ordinary income.

Question 3

Taxpayers can recognize a taxable gain even though an asset's real economic value has declined.

Accepted Answer

Taxpayers must follow the tax code rules for recognizing any gains or losses, regardless of the asset's real economic value. This is because the tax code determines the basis for calculating gains or losses, which may differ from the actual economic value of the asset.

Question 4

Assets held for investment and personal use assets are examples of capital assets.

Accepted Answer

Both assets held for investment and personal use assets are considered capital assets under tax law.

Question 5

The gain or loss realized is the amount realized less the adjusted basis.

Accepted Answer

This statement is true according to tax laws. The amount of gain or loss realized is the difference between the amount received from the sale of an asset (amount realized) and the adjusted basis of that asset, which is typically the original cost of the asset plus any improvements or expenses incurred to maintain or improve the asset.

Question 6

An asset's tax adjusted basis is usually greater than its book adjusted basis.

Accepted Answer

An asset's tax adjusted basis is usually lower than its book adjusted basis, as tax rules allow for certain depreciation and cost recovery deductions that decrease the tax basis.

Question 7

Unrecaptured §1250 gains apply only to individuals.

Accepted Answer

The answer of Unrecaptured §1250 gains apply only to individuals....

Question 8

Only accelerated depreciation is recaptured for §1245 assets.

Accepted Answer

Both accelerated depreciation and straight-line depreciation are recaptured for §1245 assets, but the recapture is treated as ordinary income to the extent of any gain realized on the sale, up to the total amount of depreciation taken on the asset.

Question 9

§1231 assets include all assets used in a trade or business.

Accepted Answer

Section 1231 assets include depreciable property and real property (like buildings and equipment) used in a trade or business and held for more than one year. However, inventory, accounts receivable, and certain other assets are not considered §1231 assets even though they may be used in a trade or business.

Question 10

Ordinary gains and losses are obtained on the sale of investments.Capital gains and losses are obtained on the sale of investments.

Accepted Answer

The answer of Ordinary gains and losses are obtained on...

Question 11

After application of the lookback rule,net §1231 gains become capital while net §1231 losses become ordinary.

Accepted Answer

The lookback rule recharacterizes net §1231 gains as capital gains and net §1231 losses as ordinary losses.

Question 12

The amount realized is the sale proceeds less the adjusted basis.

Accepted Answer

The amount realized is the total consideration received from the sale before subtracting the adjusted basis. The adjusted basis is subtracted from the amount realized to determine the gain or loss on the sale.

Question 13

Accounts receivable and inventory are examples of ordinary assets.

Accepted Answer

Accounts receivable and inventory are both considered ordinary assets in accounting, as they are part of a company's normal operations and are expected to be converted into cash within a year or a business cycle.

Question 14

All tax gains and losses are ultimately characterized as either ordinary or capital.

Accepted Answer

All tax gains and losses can be characterized as ordinary or capital, based on the type of income or asset being taxed.

Question 15

The gain or loss realized is always recognized for tax purposes.

Accepted Answer

The answer of The gain or loss realized is always...

Question 16

For corporations,§291 recaptures 20 percent of the lesser of depreciation taken or the realized gain as ordinary income.

Accepted Answer

§291 of the Internal Revenue Code requires corporations to recapture 20 percent of the lesser of depreciation taken or the realized gain as ordinary income.

Question 17

A parcel of land is always a capital asset.

Accepted Answer

A parcel of land can be considered a capital asset if it is held by the owner for investment purposes. However, if the land is used in a trade or business, such as in farming or as part of the inventory of a real estate developer, it is not treated as a capital asset but rather as a business asset.

Question 18

Generally,the amount realized is everything of value received in a sale less selling expenses.

Accepted Answer

This is correct. The amount realized is the total amount received from the sale, which includes everything of value received, such as cash or property, less any expenses incurred during the sale, such as commissions or closing costs.

Question 19

§1250 recaptures the excess of accelerated depreciation over straight line depreciation on real property placed in service between 1981 and 1986 as ordinary income.

Accepted Answer

§1250 recaptures the excess of accelerated depreciation over straight line depreciation on real property placed in service between 1981 and 1986 as ordinary income.

Question 20

Unrecaptured §1250 gain is taxed at a maximum rate of 25 percent.

Accepted Answer

Unrecaptured §1250 gain is a type of capital gain from the sale of depreciable real estate. It is taxed at a maximum rate of 25% for individual taxpayers.

Quiz 10: Property Dispositions

The adjusted basis is the cost basis less cost recovery deductions.

Depreciation recapture changes both the amount and character of a gain.Depreciation recapture changes the character of the gain,not the amount.

Taxpayers can recognize a taxable gain even though an asset's real economic value has declined.

Assets held for investment and personal use assets are examples of capital assets.

The gain or loss realized is the amount realized less the adjusted basis.

An asset's tax adjusted basis is usually greater than its book adjusted basis.

Unrecaptured §1250 gains apply only to individuals.

Only accelerated depreciation is recaptured for §1245 assets.

§1231 assets include all assets used in a trade or business.

Ordinary gains and losses are obtained on the sale of investments.Capital gains and losses are obtained on the sale of investments.

After application of the lookback rule,net §1231 gains become capital while net §1231 losses become ordinary.

The amount realized is the sale proceeds less the adjusted basis.

Accounts receivable and inventory are examples of ordinary assets.

All tax gains and losses are ultimately characterized as either ordinary or capital.

The gain or loss realized is always recognized for tax purposes.

For corporations,§291 recaptures 20 percent of the lesser of depreciation taken or the realized gain as ordinary income.

A parcel of land is always a capital asset.

Generally,the amount realized is everything of value received in a sale less selling expenses.

§1250 recaptures the excess of accelerated depreciation over straight line depreciation on real property placed in service between 1981 and 1986 as ordinary income.

Unrecaptured §1250 gain is taxed at a maximum rate of 25 percent.