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Exam 17: Property Transactions: Section 1231 and Recapture Provisions

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Question 31

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Involuntary conversion gains may be deferred if the proceeds of the involuntary conversion are reinvested.

A) True
B) False

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Question 32

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Which of the following assets held by a retail business is a § 1231 asset?

A) Inventory.
B) A machine used in the business and held less than one year.
C) A factory building used in the business and held more than one year.
D) Accounts receivable.
E) All of the above.

F) C) and D)
G) B) and D)

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Question 33

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Section 1231 property generally does not include accounts receivables arising in the ordinary course of business.

The chart below describes the § 1231 assets sold by the Ecru Company (a sole proprietorship)this year.Compute the gain or loss from each asset disposition and determine the net § 1231 gain treated as long-term capital gain for the year.Assume there is a § 1231 lookback loss of $4,000.

Jamison owned a rental building (but not the land)that was destroyed by a hurricane.The building was insured and Jamison has a $56,000 gain because his insurance recovery exceeded his adjusted basis for the building.Jamison does not intend to replace the building.Jamison had taken $45,000 of depreciation on the building,has no § 1231 lookback loss,has no other § 1231 transactions for the year,and has no Schedule D transactions for the year.What is the final nature of Jamison's gain for the year and what tax rate(s)apply to the gain?

Lynne owns depreciable residential rental real estate which has accumulated depreciation (all from straight-line) of $65,000.If Lynne sold the property,she would have a $53,000 gain.The initial characterization of the gain would be:

Which of the following assets held by a cash basis accounting firm is a § 1231 asset?

Part II of Form 4797 is used to report gains from the sale of depreciable business equipment sold at a gain and held more than one year.

Vertigo,Inc.,has a 2012 net § 1231 loss of $64,000 and had a $32,000 net § 1231 gain in 2011.For 2012,Vertigo's net § 1231 loss is treated as:

Section 1231 lookback losses may convert some or all of § 1250 gain into ordinary income.

Spencer has an investment in two parcels of vacant land.Parcel 1 is a capital asset and parcel 2 is a § 1231 asset.Spencer already has short-term capital loss for the year he would like to offset with capital gain.Spencer has § 1231 lookback loss that exceeds the gain from the disposition of either land parcel.Spencer only wants to sell one land parcel and each of them would yield the same amount of gain.The gain that would be recognized exceeds the short-term capital loss Spencer already has.Which of the statements below is correct?

Residential real estate was purchased in 2009 for $345,000,held as rental property,and depreciated straight-line.Assume the land cost was $45,000 and the building cost was $300,000.Depreciation totaled $34,089.The building and land were sold on June 10,2012,for $683,000 total.What is the tax status of the property,the nature of the gain from the disposition,and is any of it § 1250 depreciation recapture gain or unrecaptured § 1250 gain?

Betty,a single taxpayer with no dependents,has the gains and losses shown below.Before considering these transactions,Betty has $45,000 of other taxable income.What is the treatment of the gains and losses and what is Betty's taxable income?

If § 1231 asset casualty gains and losses net to a gain,the gain is treated as a § 1231 gain.

White Company acquires a new machine for $35,000 and uses it in White's manufacturing operations.A few months after White places the machine in service,it discovers that the machine is not suitable for White's business.White had fully expensed the machine in the year of acquisition using § 179.White sells the machine for $5,000 in the tax year after it was acquired,but held the machine only for a total of 10 months.What was the tax status of the machine when it was disposed of and the amount of the gain or loss?

Depreciation recapture under § 1245 and § 1250 is reported on Form 4797.

Assume a building is subject to § 1250 depreciation recapture because it was acquired before 1987 and accelerated depreciation was used to depreciate it.The building is destroyed in a fire and this is the taxpayer's only casualty or theft for the year.In which of the following situations could there be a § 1250 depreciation recapture gain?

Vanna owned an office building that had been held more than one year when it was sold for $567,000.The real estate had an adjusted basis of $45,000 for the land and $233,000 for the building.Straight-line depreciation of $162,000 had been taken on the building.What is the amount and initial character of the gain or loss from disposition of the real estate? Is any of the gain unrecaptured § 1250 (25%)gain?

Red Company had an involuntary conversion on December 23,2012.The machinery had been acquired on April 1,2010,for $49,000 and its adjusted basis was $14,200.The machinery was completely destroyed by fire and Red received $10,000 of insurance proceeds for the machine and did not replace it.This was Red's only casualty or theft event for the year.As a result of this event,Red initially has:

Which of the following would extinguish the § 1245 recapture potential?