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Exam 11: Property Dispositions

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Question 1

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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 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 35 percent,what effect do the gains and losses have on Brandon's tax liability?

A) $25,000 ordinary income, $8,750 tax liability.
B) $25,000 §1231 gain and $3,750 tax liability.
C) $13,000 §1231 gain, $12,000 ordinary income, and $6,150 tax liability.
D) $12,000 §1231 gain, $13,000 ordinary income, and $6,350 tax liability.
E) None of the choices are correct.

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

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Question 2

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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?

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Capital gain of $55,000. The $55,000 ($250,000 − $195,000)gain is capital because the land was held for investment.

Question 3

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Realized gains are recognized unless there is specific exception.

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

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?

Bull Run sold a computer for $1,200 on November 10ᵗʰ of the current year.The computer was purchased for $2,800.Bull Run had taken $1,000 of depreciation deductions.What is Bull Run's gain or loss realized on the computer?

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

Misha traded computer equipment used in her business to a computer dealer for some new computer equipment.Misha originally purchased the computer equipment for $15,000 and it had an adjusted basis of $11,000 at the time of the exchange.Misha also received a used copier worth $2,000 in the transaction.What is Misha's adjusted basis in the new equipment after the exchange?

Winchester LLC sold the following business assets during the current year: (1) automobile,$30,000 cost basis,$12,000 depreciation,proceeds $20,000; (2) machinery,$25,000 cost basis,$20,000 depreciation,proceeds $10,000; (3) furniture,$15,000 cost basis,$10,000 depreciation,proceeds $4,000; (4) computer equipment,$25,000 cost basis,$6,000 depreciation,proceeds $10,000; (5) Winchester had unrecaptured §1231 losses of $3,000 in the prior 5 years.What is 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.

Accounts receivable and inventory are examples of ordinary assets.

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?

Depreciation recapture changes both the amount and character of a gain.

The amount realized is the sale proceeds less the adjusted basis.

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

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

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 35 percent,what effect do the gains and losses have on Brandon's tax liability?

Bozeman sold equipment that it uses in its business for $80,000.Bozeman bought the equipment two years ago for $75,000 and has claimed $20,000 of depreciation expense.What is the amount and character of Bozeman's gain or loss?

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 35 percent,what is the character of the gains and losses and what affect do they have on Suzanne's tax liability?

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 $15,000 and $25,000,respectively?

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 in next year.What is the amount and character of the gain that Raven will recognize in the current year?