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Exam 14: Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions

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Question 41

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The following table describes the § 1231 assets sold by Tan Company (a sole proprietorship) this year. Compute the gain or loss from each asset disposition and determine the net § 1231 gain treated as long-term capital gain for the year. Assume that there is a § 1231 lookback loss of $14,000. $\begin{array} { l c c c c c } \text { Asset } & \text { Acquired } & \text { Sold } & \text { Cost } & \text { Depreciation } & \text { Sale Price } \\\text { Stamping machine } & 3 / 10 / 15 & 8 / 10 / 19 & \$ 40,000 & \$ 29,736 & \$ 2,000 \\\text { Factory building } & 2 / 12 / 12 & 7 / 23 / 19 & 80,000 & 18,838 & 90,000 \\\text { Tractor } & 5 / 16 / 14 & 11 / 13 / 19 & 52,000 & 52,000 & 60,000 \\\text { Overhead crane } & 11 / 12 / 08 & 2 / 25 / 19 & 74,000 & 74,000 & 18,000\end{array}$

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The stamping machine is sold at a $8,264...

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Question 42

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During 2019, an individual had the following gains and losses on property held for the long-term holding period: sale of Orange common stock ($8,000 gain) ; sale of real property used in the taxpayer's business ($1,800 loss) ; destruction of real property used in the taxpayer's business by fire ($1,000 loss) . Which of the following statements is correct?

A) The fire loss would reduce the real property sale loss.
B) The fire loss would reduce the stock sale gain.
C) The sale of real property loss would be netted against the stock sale gain.
D) The sale of real property is a § 1231 loss.
E) None of these.

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Question 43

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A business machine purchased April 10, 2018, for $62,000 was fully depreciated in 2018 using § 179 immediate expensing. On August 15, 2019, the sole proprietor who owned the machine gave it to his son. On that date, the machine's fair market value was $57,000. The son did not use the machine in business or hold it as inventory and sold it on November 22, 2019, for $53,000.What are the amount and nature of the gain or loss from disposition of the machine? Where is it reported in the son's tax return?

Casualty gains and losses from nonpersonal use assets are not netted against casualty gains and losses from personal use assets.

Stanley operates a restaurant as a sole proprietorship. Which of the following items are capital assets in his hands?

If the holder of an option fails to exercise the option, the lapse of the option is considered a sale or exchange on the option expiration date.

Thoren has the following items for the year: $4,000 of short-term capital gain, $5,000 of 0%/15%/20% long-term capital gain, and $1,500 of 28% capital loss. Which of the following is correct?

On January 10, 2019, Wally sold an option for $2,000 on vacant land he held as an investment. He had purchased the land in 2015 for $76,000. The option allowed the option holder to purchase the property for $122,000 plus the cost of the option. On March 1, 2019, the option holder exercised the option. What is the amount and nature of Wally's gain or loss from disposition of the land?

When an individual taxpayer has a net long-term capital gain that includes both a 28% gain and a 0%/15%/20% gain, which of these gains will be taxed first when the alternative tax on net long-term capital gain method is used and what difference does it make?

Part III of Form 4797 is used to report gains from the sale of depreciable business equipment sold at a gain and held more than one year.

Section 1231 applies to the sale or exchange of business properties but not to personal use activity casualties.

Cason is filing as single and has 2019 taxable income of $36,000 which includes $34,000 0%/15%/20% net long-term capital gain. What is his tax on taxable income using the alternative tax method? Note: Use the tax rate schedule rather than the tax table.

Martha has both long-term and short-term 2019 capital gains and losses. The result of netting these gains and losses is a net long-term capital loss. Martha has no qualified dividend income. Also, her 2019 taxable income puts her in the 24% tax bracket. Which of the following is correct?

The maximum amount of the unrecaptured § 1250 gain (25% gain) is the depreciation taken on real property sold at a recognized gain.

Charmine, a single taxpayer with no dependents, has already incurred a $10,000 § 1231 gain in 2019 and has no § 1231 lookback losses. She purchased a business machine for $100,000 five years ago; $70,000 of depreciation has been taken on it, and the machine is now worth $90,000. How will the net § 1231 gain or loss be affected if Charmine trades in the business machine for a like-kind business machine and pays an additional $12,000 in cash to obtain the replacement machine? If Charmine already has $352,000 of taxable income, which does not include a $10,000 § 1231 gain or any capital gains or losses, what is her taxable income?

Ranja acquires $200,000 face value corporate bonds for $186,000 when the bonds are issued. He holds the bonds as an investment for two years and then sells them for $198,000. He amortizes $2,000 of the OID. What tax issues does Ranja have with respect to these bonds?

In 2019 Angela, a single taxpayer with no dependents, disposed of a business building for $44,000 that cost $100,000. Depreciation of $60,000 had been taken on the building. Angela has a short-term capital loss of $3,000 this year. She has taxable income (not related to property transactions) of $125,000 and no § 1231 lookback loss. What is the amount and nature of the gain or loss, what is Angela's taxable income, and what is her tax on the taxable income?

Larry was the holder of a patent on a video game. During 2019, he sold all substantial rights in the patent for $365,000 in cash and a 3% royalty on the purchaser's first $10,200,000 of sales each year related to the product in which the patent is incorporated. Larry had not reduced the patent to practice. He had a $86,000 basis for the patent. During 2019, he received $30,000 in royalties. What is the nature and amount of Larry's gain?

Mike is a self-employed TV technician. He is usually paid as soon as he completes repairs but occasionally bills a customer with payment expected within 30 days. At the end of the year, he has $2,500 of receivables outstanding. He expects to collect $1,200 of this and write off the remainder. Mike is a cash basis taxpayer and had net earnings from his business (not including the effect of the items above) of $55,000. He also had $3,500 interest income and $200 gambling winnings, and he sold corporate stock for $7,000. The stock had been purchased in 2015 for $8,200. Mike is single and claims the standard deduction. What is his 2019 taxable income? (Ignore the self-employment tax deduction.)

Residential real estate was purchased in 2016 for $345,000, held as rental property, and depreciated straight-line. Assume that the land cost was $45,000 and the building cost was $300,000. Depreciation totaled $34,089. The building and land were sold on June 10, 2019, for $683,000 total. What are the tax status of the property and the nature of the gain from the disposition, and is any of it § 1250 depreciation recapture gain or unrecaptured § 1250 gain?