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Exam 11: Property Dispositions

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Question 21

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Sadie sold 10 shares of stock to her brother, George, for $500 16 months ago.Sadie had purchased the stock for $600 two years earlier.If George sells the stock for $700, what are 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 the choices are correct.

F) B) and C)
G) None of the above

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Question 22

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Depreciation recapture changes both the amount and character of a gain.

A) True
B) False

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Question 23

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The §1231 look-back rule applies whether there is a net gain or loss.

Winchester LLC sold the following business assets during the current year: (1) automobile, $30,000 cost basis, $12,000 depreciation, $20,000 proceeds; (2) machinery, $25,000 cost basis, $20,000 depreciation, $10,000 proceeds; (3) furniture, $15,000 cost basis, $10,000 depreciation, $4,000 proceeds; (4) computer equipment, $25,000 cost basis, $6,000 depreciation, $10,000 proceeds; (5) Winchester had unrecaptured §1231 losses of $3,000 in the prior five years.What are the amount and character of Winchester's gains and losses before the §1231 netting process? Assume all assets were held for more than one year.

Alexandra sold equipment that she uses in her business for $100,000.Alexandra bought the equipment two years ago for $90,000 and has claimed $25,000 of depreciation expense.What is the amount and character of Alexandra's gain or loss?

The gain or loss realized on the sale of an asset is the amount realized less the adjusted basis.

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

Each of the following is true except for:

Taxpayers can recognize a taxable gain on the sale of an asset even though an asset's real economic value has declined.

Arlington LLC exchanged land used in its business for some new land.Arlington originally purchased the land it exchanged for $28,000.The new land had a fair market value of $35,000.Arlington also received $2,000 of office equipment in the transaction.What is Arlington's recognized gain or loss on the exchange?

Unrecaptured §1250 gain is taxed at a maximum rate of 25 percent.

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

All tax gains and losses are ultimately characterized as either ordinary or capital.

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

Ordinary gains and losses are obtained on the sale of investments.

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

Which of the following is how gain or loss realized is calculated?

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: $\begin{array} { l r r r r } &&{ \text { Accurnulated } }\\\text { Asset } & \text { Original Cost } &\text { Depreciation } & \text { Gair/Loss } \\\text { Machinery } & \$ 12,000 & \$ 7,000 & \$ 6,000 \\\text { Furniture } & 10,000 &2,00 0 & 3,000 \\\text { Building } & 90,000 & 20,000 & ( 5,000 )\end{array}$ 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?

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 next year.What is the amount and character of the gain that Raven will recognize in the current year?

Unrecaptured §1250 gains apply only to individuals.