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Brandon, an individual, began business four years ago and has never sold a §1231 asset. Brandon owned each of the assets for several years. In the current year, Brandon sold the following business assets: Brandon, an individual, began business four years ago and has never sold a §1231 asset. 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? A) $7,000 ordinary income, $1,000 §1231 loss, and $1,920 tax liability. B) $6,000 ordinary income and $1,920 tax liability. C) $7,000 §1231 gain and $2,240 tax liability. D) $7,000 §1231 gain and $1,050 tax liability. E) None of the choices are correct. Assuming Brandon's marginal ordinary income tax rate is 32 percent, what effect do the gains and losses have on Brandon's tax liability?


A) $7,000 ordinary income, $1,000 §1231 loss, and $1,920 tax liability.
B) $6,000 ordinary income and $1,920 tax liability.
C) $7,000 §1231 gain and $2,240 tax liability.
D) $7,000 §1231 gain and $1,050 tax liability.
E) None of the choices are correct.

F) A) and E)
G) None of the above

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For corporations, §291 recaptures 20 percent of the lesser of depreciation taken or the realized gain as ordinary income.

A) True
B) False

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

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$8,000 ordinary gain and $3,000 §1231 lo...

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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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Which one of the following is not true regarding a like-kind exchange?


A) Loss on like-kind property is not recognized.
B) Gains on boot given are deferred.
C) Losses on boot given are not recognized.
D) Land can be like-kind with a building.
E) All of the choices are true.

F) C) and D)
G) C) and E)

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A loss realized for property destroyed in a hurricane is deferred under the involuntary conversion rules.

A) True
B) False

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How long after the initial exchange does a taxpayer have to identify replacement property in a like-kind exchange?


A) The like-kind property to be received must be identified within 45 days.
B) The like-kind property to be received must be identified by the earlier of 45 days or the last day of the taxpayer's taxable year.
C) The like-kind property to be received must be identified within 180 days.
D) There is no deadline for the identification of replacement property.
E) All of the choices are correct.

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

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Unrecaptured §1250 gain is taxed at a maximum rate of 25 percent.

A) True
B) False

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Brandon, an individual, began business four years ago and has sold §1231 assets with $5,000 of losses within the last five years. Brandon owned each of the assets for several years. In the current year, Brandon sold the following business assets: Brandon, an individual, began business four years ago and has sold §1231 assets with $5,000 of losses within the last five 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. A) $25,000 ordinary income and $8,000 tax liability. B) $25,000 §1231 gain and $3,750 tax liability. C) $13,000 §1231 gain, $12,000 ordinary income, and $5,790 tax liability. D) $12,000 §1231 gain, $13,000 ordinary income, and $5,960 tax liability. E) None of the choices are correct. 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.


A) $25,000 ordinary income and $8,000 tax liability.
B) $25,000 §1231 gain and $3,750 tax liability.
C) $13,000 §1231 gain, $12,000 ordinary income, and $5,790 tax liability.
D) $12,000 §1231 gain, $13,000 ordinary income, and $5,960 tax liability.
E) None of the choices are correct.

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

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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.


A) $3,000 ordinary loss, $0 §1231 loss.
B) $7,000 ordinary gain, $10,000 §1231 loss.
C) $7,000 ordinary loss, $4,000 §1231 gain.
D) $1,000 ordinary gain, $4,000 §1231 loss.
E) None of the choices are correct.

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

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For an installment sale, the gross profit percentage is the gain recognized divided by the gain realized.

A) True
B) False

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A parcel of land is always a capital asset.

A) True
B) False

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


A) Capital.
B) Ordinary.
C) §1231.
D) Investment.
E) None of the choices are correct.

F) All of the above
G) A) and C)

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Which of the following results in an ordinary gain or loss?


A) Sale of a machine at a gain.
B) Sale of stock held for investment.
C) Sale of a §1231 asset.
D) Sale of inventory.
E) None of the choices are correct.

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

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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?


A) $20,000 ordinary income under §1239.
B) $10,000 ordinary gain and $10,000 §1231 gain.
C) $20,000 §1231 gain.
D) $20,000 capital gain.
E) None of the choices are correct.

F) A) and B)
G) None of the above

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

A) True
B) False

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Which of the following is true regarding depreciation recapture?


A) Changes the character of a loss.
B) Changes the character of a gain.
C) Changes the amount of a gain.
D) Only applies to ordinary assets.
E) None of the choices are correct.

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

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Which of the following gains does not result solely in an ordinary gain or loss?


A) Sale of equipment held for less than a year.
B) Sale of inventory.
C) Sale of equipment where the gain realized exceeds the accumulated depreciation.
D) Sale of equipment where the accumulated depreciation exceeds the gain realized.
E) None of the choices are correct.

F) All of the above
G) B) and E)

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Realized gains are recognized unless there is specific exception.

A) True
B) False

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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) A) and B)
G) D) and E)

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