Question 1

Andrew, an individual, began business four years ago and has never sold a §1231 asset. Andrew owned each of the assets for several years. In the current year, Andrew sold the following business assets:
  Assuming Andrew's marginal ordinary income tax rate is 32 percent, what is the character of the gains and losses and what affect do they have on Andrew's tax liability?

Accepted Answer

The answer of Andrew, an individual, began business four years...

Question 2

Peroni Corporation sold a parcel of land valued at $300,000. Its basis in the land was $250,000. For the land, Peroni received $150,000 in cash in the current year and a note providing Peroni with $150,000 in the subsequent year. What is Peroni's recognized gain in the current and subsequent year, respectively?
A) $0, $50,000.
B) $10,000, $40,000.
C) $25,000, $25,000.
D) $50,000, $0.
E) None of the choices are correct.

Accepted Answer

The gain recognized in each year is calculated as follows; the gross profit percentage is multiplied by the amount realized in each year to determine the recognized gain. The gross profit percentage is the gain realized over the total amount realized. The $50,000 gain realized is the $300,000 amount realized ($150,000 cash plus $150,000 note) less the $250,000 adjusted basis. In the current year, the $150,000 proceeds (cash) is multiplied by the 16.67 percent gross profit percentage to determine the $25,000 gain recognized.

Question 3

Sunshine LLC sold furniture for $75,000. Sunshine bought the furniture for $90,000 several years ago and has claimed $25,000 of depreciation expense on the machine. What is the amount and character of Sunshine's gain or loss?

Accepted Answer

The answer of Sunshine LLC sold furniture for $75,000. Sunshine...

Question 4

Brandy sold a rental house that she owned for $150,000. Brandy bought the house four years ago for $140,000 and has claimed $25,000 of depreciation expense. What is the amount and character of Brandy's gain or loss?

Accepted Answer

The answer of Brandy sold a rental house that she...

Question 5

Manassas purchased a computer several years ago for $2,200. On November 10^th of the current year, the computer was worth $800. If $1,000 of depreciation deductions had been taken, what is Manassas' tax adjusted basis for the computer?

Accepted Answer

The answer of Manassas purchased a computer several years ago...

Question 6

Frederique sold furniture that she uses in her business for $15,000. Frederique bought the furniture a few years ago for $40,000 and has claimed $20,000 of depreciation expense. What is the amount and character of Frederique's gain or loss?

Accepted Answer

The answer of Frederique sold furniture that she uses in...

Question 7

Sadie sold 10 shares of stock to her brother, George, for $500 sixteen months ago. Sadie had purchased the stock for $600 two years earlier. If George sells the stock for $700, what is the amount and character of his recognized gain or loss in the current year?
A) $0.
B) $100 short-term capital gain.
C) $100 long-term capital gain.
D) $200 short-term capital gain.
E) None of the choices are correct.

Accepted Answer

Sadie's loss of $100 is deferred and her brother receives a dual basis in the stock. If he sells the stock at a gain, he receives a $600 carryover basis from Sadie. If he sells the stock at a loss he receives a $500 cost basis in the stock. George's holding period begins when he buys the stock, so he receives a $100 ($700 proceed less $600 basis) long-term gain on the sale.

Question 8

Suzanne, an individual, began business four years ago and has never sold a §1231 asset. Suzanne owned each of the assets for several years. In the current year, Suzanne sold the following business assets:
  Assuming Suzanne's marginal ordinary income tax rate is 32 percent, what is the character of the gains and losses and what affect do they have on Suzanne's tax liability?

Accepted Answer

The answer of Suzanne, an individual, began business four years...

Question 9

Which of the following may qualify as an installment sale?
A) Sale of inventory at a gain.
B) Sale of securities.
C) Sale of asset used in a business at a gain.
D) Land sold at a loss.
E) All of the choices qualify for installment sale treatment.

Accepted Answer

Assets used in a business qualify for installment sale treatment, although depreciation recapture is ineligible.

Question 10

Sandra sold some equipment for $10,000 in cash, $1,000 of office products, the buyer assumption of her $1,500 loan, and incurred selling expenses of $500. What is the Sandra's amount realized in the transaction?

Accepted Answer

The answer of Sandra sold some equipment for $10,000 in...

Question 11

Which of the following is not true regarding installment sales?
A) Only gains are eligible for installment sale reporting.
B) Depreciation recapture is deferred in an installment sale.
C) The gross profit percentage is needed to determine the annual gain recognized.
D) Stock sales are ineligible for installment sale treatment.
E) None of the choices are correct.

Accepted Answer

Depreciation recapture is not eligible for installment sale treatment and must be reported as ordinary income in the year of sale.

Question 12

Alexandra sold equipment that she uses in her business for $100,000. Alexandra bought the equipment two years ago for $90,000 and has claimed $25,000 of depreciation expense. What is the amount and character of Alexandra's gain or loss?

Accepted Answer

The answer of Alexandra sold equipment that she uses in...

Question 13

Explain whether the sale of a machine used in a trade or business that is sold at a loss generates an ordinary or capital loss?

Accepted Answer

The answer of Explain whether the sale of a machine...

Question 14

Silver sold machinery to Gold, a related entity, which it used in its business for $55,000. Silver bought the equipment a few years ago for $50,000 and has claimed $15,000 of depreciation expense. What is the amount and character of Silver's gain?

Accepted Answer

The answer of Silver sold machinery to Gold, a related...

Question 15

Gainesville LLC sold the following business assets during the current year: (1) machinery, $20,000 cost basis, $4,000 depreciation, proceeds $22,000; (2) automobile, $15,000 cost basis, $12,000 depreciation, proceeds $7,000; (3) equipment, $15,000 cost basis, $10,000 depreciation, proceeds $4,000; (4) computer equipment, $35,000 cost basis, $16,000 depreciation, proceeds $15,000; (5) Winchester had unrecaptured §1231 losses of $5,000 in the prior 5 years. What is the amount and character of Winchester's gains and losses before the 1231 netting process?

Accepted Answer

The answer of Gainesville LLC sold the following business assets...

Question 16

Andrea sold a piece of machinery she used in her business for 9 months. The amount realized was $50,000 and the adjusted basis was $55,000. What is Andrea's gain or loss realized and what is the character of the gain or loss?

Accepted Answer

The answer of Andrea sold a piece of machinery she...

Question 17

Bull Run sold a computer for $1,200 on November 10^th of the current year. The computer was purchased for $2,800. Bull Run had taken $1,000 of depreciation deductions. What is Bull Run's gain or loss realized on the computer?

Accepted Answer

The answer of Bull Run sold a computer for $1,200...

Question 18

Buzz Corporation sold an office building that it used in its business for $500,000. Buzz bought the building ten years ago for $650,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Buzz's gain or loss?

Accepted Answer

The answer of Buzz Corporation sold an office building that...

Question 19

Jessie sold a piece of land held for investment for $250,000. Jessie bought the land two years ago for $195,000. What is the amount and character of Jessie's gain?

Accepted Answer

The answer of Jessie sold a piece of land held...

Question 20

Which of the following is true regarding disallowed losses between related taxpayers?
A) The tax laws essentially treat related parties as the same taxpayer.
B) The holding period of the seller carries over to the buyer.
C) The related person always receives a carryover basis.
D) The seller's realized loss is deferred until the buyer sells the assets.
E) None of the choices are correct.

Accepted Answer

The tax laws essentially treat related parties as the same taxpayer, so disallowed losses cannot be recognized between related taxpayers. This is done to prevent related parties from manipulating their tax liabilities through intercompany transactions. The holding period and basis carryover rules may still apply, but the disallowed loss itself cannot be claimed by the related party.

Quiz 11: Property Dispositions

Sunshine LLC sold furniture for $75,000. Sunshine bought the furniture for $90,000 several years ago and has claimed $25,000 of depreciation expense on the machine. What is the amount and character of Sunshine's gain or loss?

Brandy sold a rental house that she owned for $150,000. Brandy bought the house four years ago for $140,000 and has claimed $25,000 of depreciation expense. What is the amount and character of Brandy's gain or loss?

Manassas purchased a computer several years ago for $2,200. On November 10th of the current year, the computer was worth $800. If $1,000 of depreciation deductions had been taken, what is Manassas' tax adjusted basis for the computer?

Frederique sold furniture that she uses in her business for $15,000. Frederique bought the furniture a few years ago for $40,000 and has claimed $20,000 of depreciation expense. What is the amount and character of Frederique's gain or loss?

Sadie sold 10 shares of stock to her brother, George, for $500 sixteen months ago. Sadie had purchased the stock for $600 two years earlier. If George sells the stock for $700, what is the amount and character of his recognized gain or loss in the current year?

Which of the following may qualify as an installment sale?