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Exam 11: Property Dispositions

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Question 1

Multiple Choice

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When does unrecaptured §1250 gains apply?

A) When the taxpayer makes the election.
B) It applies only when non-corporate taxpayers sell depreciable real property at a gain.
C) It applies when §1245 recapture trumps §1250 recapture.
D) It applies only when real property purchased before 1986 is sold at a gain.
E) None of the choices are correct.

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

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Question 2

Multiple Choice

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Mary exchanged an office building used in her business for some land. Mary originally purchased the building for $45,000 and it had an adjusted basis of $20,000 at the time of the exchange. The land had a fair market value of $40,000. Mary also gave $4,000 to the in the transaction. What is Mary's adjusted basis in the land after the exchange?

A) $20,000.
B) $24,000.
C) $36,000.
D) $40,000.
E) None of the choices are correct.

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

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Question 3

True/False

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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.

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

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?

For a like-kind exchange, realized gain is deferred if the exchange is solely for like-kind property.

An asset's tax adjusted basis is usually greater than its book adjusted basis.

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?

What is the primary purpose of a third-party intermediary in a deferred like-kind exchange?

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

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 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?

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

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?

Only accelerated depreciation is recaptured for §1245 assets.

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

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

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

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?

Which of the following sections does not recapture or recharacterize a taxpayer's gain?