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Exam 8: Depreciation and Sale of Business Property

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Question 21

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Which one of the following is true about Section 1231 assets?

A) Section 1231 assets are treated like capital assets when they produce losses on sale.
B) Business property held 1 year or less is considered a Section 1231 asset.
C) Section 1231 assets include company stock.
D) Section 1231 asset losses must be netted against 1231 asset gains before tax treatment is determined.
E) All of the above are false.

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Question 22

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In the current year, Tim sells Section 1245 property for $28,000 that he had purchased 6 years ago.Tim has claimed $7,000 in depreciation on the property and originally purchased it for $20,000.How much of the gain is taxable as ordinary income?

A) $7,000
B) $8,000
C) $13,000
D) $18,000
E) None of the above is correct

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Question 23

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An asset (not an automobile) placed in service in June 2018 has a depreciable basis of $35,000 and a recovery period of 5 years.Assuming bonus depreciation is used, a half-year convention, and no expensing election, what is the maximum amount of cost that can be deducted in 2018?

Steve Corp bought a $600,000 apartment building in June of 2017.Of the purchase price, $104,950 is allocated to the value of the land.What is the maximum amount of depreciation that the company can claim in 2018 (Year 2) for the building?

Assuming a taxpayer has no other gains or losses for the year, a loss from the theft of a Section 1231 asset is treated as a capital loss.

197 intangibles:

Lorreta has a manufacturing business.In the current year, her storage building is completely destroyed by fire and she receives $315,000 from her insurance company.She purchased the building for $300,000 20 years ago and has claimed depreciation of $85,000 using the straight-line method.In the following year, she purchases a new storage building at a cost of $295,000. a.Calculate Lorreta's realized gain or loss. b.Assuming Lorreta makes an election under the involuntary conversion provision, calculate Lorreta's recognized gain or loss? c.Assuming Lorreta makes an election under the involuntary conversion provision, what is Lorreta's basis in the new building?

Robert acquired his rental property 10 years ago for $110,000 and sold it in the current year for $230,000.The accumulated straight-line depreciation on the property at the time of the sale was $35,000.Robert is in the 32 percent tax bracket for ordinary income. a.What is Robert's gain on the sale of his rental property? b.How is the gain taxed? (i.e., what tax bracket is the gain subject to)?

To be depreciated, must an asset actually lose value each year?

ABC Corp bought a production machine on January 1, 2016 for $31,250.The company did not elect Section 179 expensing and elected out of claiming bonus depreciation in 2016, and is depreciating the machine using the MACRS accelerated depreciation tables for 5-year property.What is the 2018 depreciation (Year 3) deduction for the machine?

If land declines in value, it may be depreciated for tax purposes.

Taxpayers may expense the cost of depreciable personal property placed in service during the year and used in a trade or business in an amount up to a maximum of $2,500,000 annually.

Which one of the following may not be depreciated using an accelerated method?

A taxpayer places a $50,000 5-year recovery period asset in service in 2018.This is the only asset placed in service in 2018.Assuming half-year convention, bonus depreciation, and taxable income before cost recovery of $5,000, what is the amount of cost recovery in 2018?

Taxpayers must use the straight-line method of depreciation for all productive assets.

In the current year, Helen sold Section 1245 property for $6,000.The property cost $26,000 when it was purchased 5 years ago.The depreciation claimed on the property was $24,000. a.Calculate the adjusted basis of the property. b.Calculate the amount of ordinary income under Section 1245. c.Calculate the Section 1231 gain.

Which of the following is true about the MACRS depreciation system?

In a like-kind exchange, relief from a liability is treated as boot.

A net long-term gain from the theft of a Section 1231 asset is treated as a Section 1231 gain.

During the current year, Ethel exchanges a business land for different business land in a like-kind exchange.Ethel's adjusted basis in the land given up is $7,000, and she receives a land worth $13,000 plus $3,000 cash. a.Calculate the amount of gain realized by Ethel on the exchange. b.Calculate the amount of the gain that must be recognized by Ethel on the transaction. c.Calculate Ethel's basis in the new land.