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Exam 3: Property Dispositions

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Question 1

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Which of the following is true regarding the §1231 look-back rule?

A) It only applies when a §1231 loss occurs.
B) It only applies when a §1231 gain occurs.
C) It only applies when a §1231 gain occurs and there is a nonrecaptured §1231 loss in the prior five years.
D) It only applies when a §1231 gain occurs and there is a nonrecaptured §1231 gain in the prior five years.
E) None of the choices are correct.

F) A) and E)
G) B) and C)

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Question 2

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The §1231 look-back rule applies whether there is a net gain or loss.

A) True
B) False

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Question 3

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Which of the following is true regarding depreciation recapture?

An installment sale is any sale where at least a portion of the sale proceeds is received in a subsequent taxable year.

In the current year, Raven sold machinery with a fair market value of $200,000. The machinery's original basis was $190,000 and Raven's accumulated depreciation on the machinery was $40,000, so its adjusted basis to Raven was $150,000. Raven received $50,000 in the current year and a note paying Raven $75,000 a year for two years beginning next year. What is the amount and character of the gain that Raven will recognize in the current year?

§1250 recaptures the excess of accelerated depreciation over straight-line depreciation on real property placed in service before 1987 as ordinary income.

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

Which of the following is how gain or loss realized is calculated?

Which of the following is not used in the calculation of the amount realized:

The gain or loss realized on the sale of an asset is always recognized for tax purposes.

Reid had a business building destroyed in a fire. The old building was purchased for $375,000, and $60,000 of depreciation deductions had been taken. Although the old building had a fair market value of $425,000 at the time of the fire, his insurance proceeds were limited to $400,000. Reid found qualified replacement property that he acquired six months later for $390,000. What is the amount of Reid's realized gain and recognized gain?

A taxpayer that receives boot in a like-kind exchange resulting in a gain recognizes as gain the lesser of the fair market value of the boot received or the gain realized.

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

Koch traded Machine 1 for Machine 2 when the fair market value of both machines was $50,000. Koch originally purchased Machine 1 for $75,000, and Machine 1's adjusted basis was $40,000 at the time of the exchange. Machine 2's seller purchased it for $65,000 and Machine 2's adjusted basis was $55,000 at the time of the exchange. What is Koch's adjusted basis in Machine 2 after the exchange?

Winchester LLC sold the following business assets during the current year: (1) automobile, $30,000 cost basis, $12,000 depreciation, $20,000 proceeds; (2) machinery, $25,000 cost basis, $20,000 depreciation, $10,000 proceeds; (3) furniture, $15,000 cost basis, $10,000 depreciation, $4,000 proceeds; (4) computer equipment, $25,000 cost basis, $6,000 depreciation, $10,000 proceeds; (5) Winchester had unrecaptured §1231 losses of $3,000 in the prior five years. What are the amount and character of Winchester's gains and losses before the §1231 netting process? Assume all assets were held for more than one year.

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

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?

Silver sold machinery that it used in its business to Gold, a related entity, 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?

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?

Boot is not like-kind property involved in a like-kind exchange.