Question 1

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 thesE.§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.

Accepted Answer

Bozeman has an ordinary gain of $20,000 (selling price $80,000 minus adjusted basis $60,000) due to the depreciation already claimed. The remaining gain of $5,000 is considered §1231 gain as it represents the excess of the selling price over the original cost basis ($75,000).

Question 2

Which of the following is not a §1245 asset if held for more than one year?
A)Machinery.
B)Automobile.
C)Building purchased in 1985 for which accelerated depreciation was elected.
D)Land.
E)None of thesE.Land is not subject to cost recovery and is a 1231 asset,but not a §1245 asset.

Accepted Answer

Land is not a §1245 asset if held for more than one year. It is, however, a 1231 asset. Machinery, automobile, and building purchased in 1985 for which accelerated depreciation was elected are all examples of §1245 assets that may be subject to recapture.

Question 3

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

Accepted Answer

Land used in an active trade or business for two years is considered a §1231 asset.

Question 4

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

Accepted Answer

Assets used in a trade or business and held for one year or less are considered ordinary assets, resulting in ordinary gain or loss upon sale.

Question 5

Which of the following sections does not currently recapture or recharacterize a taxpayer's gain?
A)§1239.
B)§1244.
C)§1245.
D)§1250.
E)None of thesE.§1250 no longer applies since straight line depreciation is used for real property.

Accepted Answer

The answer of Which of the following sections does not...

Question 6

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

Accepted Answer

When machinery used in a trade or business is sold at a loss and held for more than one year, the resulting loss is classified as a §1231 loss. §1231 assets are assets used in a trade or business and held for more than one year, and they have a special tax treatment where gains are treated as long-term capital gains and losses are treated as ordinary losses. Depreciation recapture is not required for §1231 assets.

Question 7

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

Accepted Answer

§291 recaptures or recharacterizes only corporate taxpayer's gains by recapturing 20% of the lesser of gain realized or accumulated depreciation on real property. The other sections listed may apply to both individual and corporate taxpayers.

Question 8

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

Accepted Answer

Leesburg's gain is calculated as the selling price ($2,200) minus the adjusted basis ($2,600 purchase price - $1,200 depreciation = $1,400). Therefore, the gain is $2,200 - $1,400 = $800.

Question 9

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 deprecation.
C)Sale of machinery held for more than one year and where the accumulated deprecation 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 thesE.§1245 gain is the lesser of gain realized or accumulated depreciation.

Accepted Answer

When the accumulated depreciation exceeds the gain realized, the entire gain is recaptured as §1245 gain.

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

Accepted Answer

Inventory is considered an ordinary asset, and its sale results in ordinary income or loss, not a capital gain or loss.

Question 11

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 thesE.Assets held for investment generate capital gains or losses.

Accepted Answer

The sale of land held for investment generates a capital gain or loss. This is because land held for investment is classified as a capital asset, and any gain or loss from the sale of a capital asset is considered a capital gain or loss.

Question 12

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

Accepted Answer

The gain on the sale of the land would be $9,500 ($52,000 - $42,500). Since the land was held for more than one year and used in Foreaker's trade or business, the gain would be classified as a §1231 gain.

Question 13

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

Accepted Answer

The sale of inventory results in an ordinary gain or loss. The other options can potentially result in capital gains or losses, depending on various factors such as holding period and intention of the taxpayer.

Question 14

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 thesE.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.

Accepted Answer

The gain is composed of two parts: the first part is the unrecaptured §1250 gain which recaptures the lesser of depreciation taken ($50,000) or gain ($75,000), and is taxed at no more than 25%. This leaves $25,000 of the gain as §1231 gain.

Question 15

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

Accepted Answer

The sale of equipment where the gain realized exceeds the accumulated depreciation may result in a capital gain, not just an ordinary gain, due to the excess over the recaptured depreciation.

Question 16

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

Accepted Answer

The sale of the equipment results in a §1231 loss of $10,000. The amount of depreciation recapture is $40,000, which is the lesser of the depreciation taken and the gain on the sale. The remaining $10,000 of loss is a §1231 loss.

Question 17

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

Accepted Answer

Depreciation recapture changes the character of a gain from §1231 to ordinary. It does not affect losses, the amount of gain, or apply only to ordinary assets.

Question 18

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 thesE.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.

Accepted Answer

The realized gain on the sale is $800,000 - ($600,000 - $200,000) = $400,000. Since Bateman Corporation has claimed $200,000 of depreciation expense, $200,000 of the realized gain must be recaptured as ordinary income under §291. The remaining $200,000 is a §1231 gain. Therefore, the amount and character of Bateman's gain or loss is $40,000 ordinary and $360,000 §1231 gain.

Question 19

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

Accepted Answer

The answer of Butte sold a machine to a machine...

Question 20

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

Accepted Answer

The answer of The sale of machinery for more than...

Quiz 10: Property Dispositions

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

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

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 currently recapture or recharacterize a taxpayer's gain?

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?

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

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?

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

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

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

Which of the following results in an ordinary 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 gains does not result solely in an ordinary 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 is true regarding depreciation recapture?

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?

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?

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?

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?