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The gain or loss realized is the amount realized less the adjusted basis.

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Which of the following gains does not result solely in an ordinary gain or loss?


A) Sale of equipment held for less than a year.
B) Sale of inventory.
C) Sale of equipment where the gain realized exceeds the accumulated depreciation.
D) Sale of equipment where the accumulated depreciation exceeds the gain realized.
E) None of thesE.Depreciation recapture,resulting in ordinary income,is limited to accumulated depreciation.

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The §1231 lookback rule recharacterizes §1231 gains if §1231 losses have created ordinary losses in the last 5 years.

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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: 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? A) $7,000 ordinary income,$1,000 §1231 loss and $2,100 tax liability. B) $6,000 ordinary income and $2,100 tax liability. C) $7,000 §1231 gain and $2,450 tax liability. D) $7,000 §1231 gain and $1,050 tax liability. E) None of thesE.The depreciation recapture of $7,000 becomes ordinary income.The $4,000 §1231 loss becomes an ordinary loss and offsets the $3,000 §1231 gain on the machinery.The $1,000 net §1231 loss becomes ordinary and offsets the $7,000 ordinary gain.The remaining ordinary gain of $6,000 is taxed at 35 percent which results in $2,100 of tax. 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) $7,000 ordinary income,$1,000 §1231 loss and $2,100 tax liability.
B) $6,000 ordinary income and $2,100 tax liability.
C) $7,000 §1231 gain and $2,450 tax liability.
D) $7,000 §1231 gain and $1,050 tax liability.
E) None of thesE.The depreciation recapture of $7,000 becomes ordinary income.The $4,000 §1231 loss becomes an ordinary loss and offsets the $3,000 §1231 gain on the machinery.The $1,000 net §1231 loss becomes ordinary and offsets the $7,000 ordinary gain.The remaining ordinary gain of $6,000 is taxed at 35 percent which results in $2,100 of tax.

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Collins Corporation,of Camden,Maine,wants to exchange its manufacturing equipment for Rockland Company's equipment.Both parties agree that Collins's machinery is worth $200,000 and that Rockland's machinery is worth $175,000.Collins will not enter into the transaction unless it qualifies as a like-kind exchange.If Collins wants to avoid gain,what could the parties do to equalize the value exchanged but still allow the exchange to qualify as a like-kind exchange?

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Rockland could equalize the tr...

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Sadie sold 10 shares of stock to her brother,George,for $500 six months ago.Sadie had purchased the stock for $600 two years earlier.If George sells the stock for $700,what is the amount and character of his recognized gain or loss in the current year?


A) $0.
B) $100 short-term capital gain.
C) $100 long-term capital gain.
D) $200 short-term capital gain.
E) None of thesE.Sadie's loss of $100 is deferred and her brother receives a dual basis in the stock.If he sells the stock at a gain,he receives a $600 carryover basis from Sadie.If he sells the stock at a loss he receives a $500 cost basis in the stock.Sadie's basis and holding period are transferred to George,so he receives a $100 ($700 proceed less $600 basis) long-term gain on the sale.

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Realized gains are recognized unless there is specific exception.

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The sale of machinery at a loss that was used in a trade or business and held for more than one year results in the following type of loss?


A) Capital.
B) §291.
C) §1231.
D) §1245.
E) None of thesE.Assets used in a trade or business and held for more than one year are §1231 assets and do not require depreciation recapture.

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Koch traded machine 1 for machine 2.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?


A) $40,000.
B) $50,000.
C) $55,000.
D) $75,000.
E) None of thesE.The exchange qualifies as a like-kind exchange.Since no boot was transferred,Koch's basis in the new machine is the basis in its old machine.

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

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


A) Loss on like-kind property is not recognized.
B) Gains on boot given are deferred.
C) Losses on boot given are not recognized.
D) Securities can be like-kind with any other securities.
E) All of thesE.Losses on boot,but not like-kind property,given are recognized currently.

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


A) Machinery.
B) Automobile.
C) Building purchased in 1985 for which accelerated depreciation was elected.
D) Land.
E) None of thesE.Land is not subject to cost recovery and is a 1231 asset,but not a §1245 asset.

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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?


A) $25,000 §1231 gain.
B) $20,000 ordinary gain,and $5,000 §1231 gain.
C) $5,000 ordinary gain,and $20,000 §1231 gain.
D) $25,000 capital gain.
E) None of thesE.§1245 recaptures the lesser of depreciation taken ($20,000) or gain ($25,000) as ordinary income.The remaining $5,000 gain would be §1231 gain.

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The sale of land held for investment results in the following type of gain or loss?


A) Capital.
B) Ordinary.
C) §1231.
D) §1245.
E) None of thesE.Assets held for investment generate capital gains or losses.

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

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Which of the following does not ultimately result in a capital gain or loss?


A) Sale of a personal use asset.
B) Sale of inventory.
C) Gain on equipment used in a trade or business held for more than one year,if it is the only asset sale during the year.
D) Sale of capital stock in another company.
E) None of thesE.Inventory is always an ordinary asset because it is held in the ordinary course of a trade or business.

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The sale of machinery for more than the original cost basis (before depreciation) ,used in a trade or business,and held for more than one year results in the following types of gain or loss?


A) Capital and Ordinary.
B) Ordinary only.
C) Capital and §1231.
D) §1245 and §1231.
E) None of thesE.Because the sales price exceeds the original basis,§1245 depreciation recapture and §1231 gain will be recognized.

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Which of the following is not usually included in an asset's tax basis?


A) Purchase price
B) Sales tax
C) Shipping costs
D) Installation costs
E) None of these

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Which of the following results in an ordinary gain or loss?


A) Sale of a machine at a gain.
B) Sale of stock held for investment.
C) Sale of a §1231 asset.
D) Sale of inventory.
E) None of thesE.Inventory is always an ordinary asset.Sale of a §1231 asset can generate either ordinary gain or capital loss.

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Assets held for investment and personal use assets are examples of capital assets.

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