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Exam 11: Property Dispositions

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Question 1

True/False

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Boot is not like-kind property involved in a like-kind exchange.

A) True
B) False

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Question 2

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Explain whether the saleat a loss of a machine used in a trade or business generates an ordinary or capital loss?

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The sale at a loss of a machine used in a trade or business generates an ordinary loss. A machine is a §1231 asset if used in a trade or business and held for more than one year. The character of a net §1231 loss is ordinary. A gain on the sale of a §1231 asset can generate ordinary income from depreciation recapture or capital gain if the gain exceeds the depreciation taken. If the machine is used in a trade or business and sold for a gain within the first year, the character of the gain is also ordinary.

Question 3

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

Bateman Corporation sold an office building that it used in its business for $800,750. Bateman bought the building 10 years ago for $599,625 and has claimed $201,125 of depreciation expense. What is the amount and character of Bateman's gain or loss?

Ashburn reported a $105,000 net §1231 gain in Year 6. Assuming Ashburn reported $60,000 of nonrecaptured §1231 losses during Years 1 to 5, what amount of Ashburn's net §1231 gain for Year 6, if any, is treated as ordinary income?

Losses on sales between related parties are realized but not recognized.

Accounts receivable and inventory are examples of ordinary assets.

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: 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?

Brandon, an individual, began business four years ago and has sold §1231 assets with $5,550 of losses within the last five years. 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 32 percent, what effect do the gains and losses have on Brandon's tax liability? Use dividends and capital gains tax rates for reference.

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

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

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

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

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

Manassas purchased a computer several years ago for $2,200. On November 10 ^th of the current year, the computer was worth $800. If $1,000 of depreciation deductions had been taken, what is Manassas's tax-adjusted basis for the computer?

A net §1231 gain becomes ordinary while a net §1231 loss becomes long-term capital gain.

Which of the following sections does not recapture or recharacterize a taxpayer's gain?

Sunshine LLC sold furniture for $75,500. Sunshine bought the furniture for $89,900 several years ago and has claimed $24,950 of depreciation expense on the machine. What is the amount and character of Sunshine's gain or loss?

Bateman Corporation sold an office building that it used in its business for $800,000. Bateman bought the building 10 years ago for $600,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Bateman's gain or loss?

Koch traded Machine 1 for Machine 2when the fair market value of both machines was $50,000. 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?