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Exam 3: Property Dispositions

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Question 51

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

A) True
B) False

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Question 52

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Silver sold machinerythat 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?

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$20,000 of ordinary income und...

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Question 53

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The gain or loss realized on the sale of an asset is the amount realized less the adjusted basis.

The sale for more than the original cost basis (before depreciation) of machinery used in a trade or business and held for more than one year results in which of the following types of gain or loss?

Why does §1250 recapture generally no longer apply?

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?

Koch traded Machine 1 for Machine 2 when the fair market value of both machines was $49,150. Koch originally purchased Machine 1 for $76,700, and Machine 1's adjusted basis was $40,850 at the time of the exchange. Machine 2's seller purchased it for $64,150 and Machine 2's adjusted basis was $55,850 at the time of the exchange. What is Koch's adjusted basis in machine 2 after the exchange?

Sarah sold 1,000 shares of stock to her brother, David, for $18,000 more than a year ago. Sarah had purchased the stock for $20,000 several years earlier. What is the amount and character of David's recognized gain or loss in the current year if he sells the stock for either $15,000 or $25,000?

Manassas purchased a computer several years ago for $2,800. On November 10^th of the current year, the computer was worth $ 920. If $1,120 of depreciation deductions had been taken, what is Manassas's tax-adjusted basis for the computer?

Silver sold machinerythat it used in its business to Gold, a related entity, for $54,700. Silver bought the equipment a few years ago for $50,300 and has claimed $14,700 of depreciation expense. What is the amount and character of Silver's gain?

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

A parcel of land is always a capital asset.

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

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

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?

Alpha sold machinery that it used in its business to Beta, a related entity, for $40,000. Beta used the machinery in its business. Alpha bought the machinery a few years ago for $50,000 and has claimed $30,000 of depreciation expense. What is the amount and character of Alpha's gain?

Buzz Corporation sold an office building that it used in its business for $500,000. Buzz bought the building 10 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?

Which of the following realized gains results in a recognized gain?

Kristi had a business building destroyed in an earthquake. The old building was purchased for $252,500, and $80,500 of depreciation deductions had been taken. Her insurance proceeds were $551,250. Although the replacement property was much larger and nicer than her old building, Kristi's new property qualified as replacement property. She acquired the new property 13 months after the earthquake for $620,500. What is the amount of Kristi's realized gain and recognized gain and the basis in her new property?