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Exam 3: Property Dispositions

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Question 21

Multiple Choice

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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.

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

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Question 22

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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.

F) A) and E)
G) A) and D)

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Question 23

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Kristi had a business building destroyed in an earthquake. The old building was purchased for $250,000 and $80,000 of depreciation deductions had been taken. Her insurance proceeds were $550,000. 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 $620,000. What is the amount of Kristi's realized gain and recognized gain and the basis in her new property?

Which of the following is not True regarding an asset's adjusted basis?

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

Arlington LLC exchanged land used in its business for some new land. Arlington originally purchased the land for $28,000. The new land had a fair market value of $35,000. Arlington also received $2,000 of office equipment in the transaction. What is Arlington's gain or loss recognized on the exchange?

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

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?

Which of the following is not a §1245 asset if held for more than one year?

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.

Brandon, an individual, began business four years ago and has sold §1231 assets with $5,000 of losses within the last 5 years. Brandon owned each of the assets for several years. In the current year, Brandon sold the following business assets: Assuming Brandon's marginal ordinary income tax rate is 32 percent, what effect do the gains and losses have on Brandon's tax liability? Use Dividends and Capital Gains Tax Rates for reference.

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

A simultaneous exchange must take place for a transaction to qualify as a like-kind exchange.

When does unrecaptured §1250 gains apply?

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

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

Each of the following is True except for:

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?

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?

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