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

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Question 1

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A business taxpayer trades in a used fully depreciated machine on a replacement machine.Because the machine traded in was worth more than the replacement machine,the taxpayer received cash in the transaction.Assume the used machine originally cost $100,000,was worth $32,000 when it was traded in,and the replacement machine was worth $20,000.Consequently,the taxpayer received $12,000 cash in the transaction.Is there recognized gain in this transaction and,if so,what type of gain?

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Since "boot" was received in this like-k...

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Question 2

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Section 1239 (relating to the sale of certain property between related taxpayers) does not apply unless the property:

A) Was depreciated by the transferor.
B) Is depreciable in the hands of the transferee.
C) Is a capital asset.
D) Is real property.
E) None of the above.

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Question 3

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Kari owns depreciable residential rental real estate which has accumulated depreciation (all from straight-line) of $45,000.If Kari sold the property,she would have a $33,000 gain.The initial characterization of the gain would be:

What characteristics must the seller of a patent have in order to be classified as a holder?

Nonrecaptured § 1231 losses from the seven prior tax years may cause current year net § 1231 gain to be treated as ordinary income.

In the "General Procedure for § 1231 Computation: Step 2.§ 1231 Netting," if the gains exceed the losses,the net gain is offset by the "lookback" nonrecaptured § 1231 losses.

The 2009 "Qualified Dividends and Capital Gain Worksheet" is used:

The holding period of property given up in a like-kind exchange includes the holding period of the asset received if the property that has been exchanged is a capital asset.

Describe the circumstances in which the maximum unrecaptured § 1250 gain (25% gain)does not become part of the Schedule D netting process for an individual taxpayer?

Verway,Inc. ,has a 2010 net § 1231 gain of $55,000 and had a $62,000 net § 1231 loss in 2009.For 2010,Verway's net § 1231 gain is treated as:

The chart below describes the § 1231 assets sold by the Burgundy 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 there is a § 1231 lookback loss of $4,000.

Harry inherited a residence from his mother when she died.The mother had a tax basis of $566,000 for the residence when she died and the residence was worth $433,000 at the date of her death.Which of the statements below is correct?

The three tax statuses are:

A retail building used in the business of a sole proprietor is sold on March 10,2010,for $322,000.The building was acquired in 2000 for $400,000 and straight-line depreciation of $104,000 had been taken on the building.What is the maximum unrecaptured § 1250 gain from the disposition of this building?

Short-term capital losses are netted against long-term capital gains and long-term capital losses are netted against short-term capital gains.

Harold is a mechanical engineer and,while unemployed,invents a switching device for computer networks.He patents the device,but does not reduce it to practice.Harold has a zero tax basis for the patent.In consideration of $300,000 plus a $1 royalty per device sold,Harold assigns the patent to a computer manufacturing company.Harold assigned all substantial rights in the patent.Which of the following is correct?

As a general rule,the sale or exchange of an option to buy or sell property results in capital gain or loss if the property subject to the option is (or would be)a capital asset in the hands of the option holder.

Short-term capital gain is eligible for a special tax rate only when it exceeds long-term capital gain.

The § 1245 depreciation recapture potential does not reduce the amount of the charitable contribution deduction under § 170.

The following assets in Jack's business were sold in 2010: The office equipment had a zero adjusted basis and was purchased for $8,000.The automobile was purchased for $2,000 and sold for $1,200.The ABC stock was purchased for $1,800 and sold for $3,200.In 2010 (the year of sale) ,Jack should report what amount of net capital gain and net ordinary income?