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Exam 11: Property Dispositions

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Question 21

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Sumner sold equipment that it uses in its business for $30,000. Sumner bought the equipment a few years ago for $80,000 and has claimed $40,000 of depreciation expense. Assuming that this is Sumner's only disposition during the year, what is the amount and character of Sumner's gain or loss?

A) $10,000 §1231 loss.
B) $10,000 §1245 loss.
C) $50,000 ordinary loss.
D) $10,000 capital loss.
E) None of the choices are correct.

F) B) and C)
G) B) and D)

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Question 22

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Which of the following is not True regarding installment sales?

A) Only gains are eligible for installment sale reporting.
B) Depreciation recapture is deferred in an installment sale.
C) The gross profit percentage is needed to determine the annual gain recognized.
D) Stock sales are ineligible for installment sale treatment.
E) None of the choices are correct.

F) A) and C)
G) B) and C)

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Question 23

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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?

For corporations, §291 recaptures 20 percent of the lesser of depreciation taken or the realized gain as ordinary income.

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

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

A parcel of land is always a capital asset.

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

Which of the following is True regarding the §1231 look-back rule?

For an installment sale, the gross profit percentage is the gain recognized divided by the gain realized.

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

Accounts receivable and inventory are examples of ordinary assets.

A simultaneous exchange must take place for a transaction to qualify as a like-kind exchange.

Peroni Corporation sold a parcel of land valued at $300,000. Its basis in the land was $250,000. For the land, Peroni received $150,000 in cash in the current year and a note providing Peroni with $150,000 in the subsequent year. What is Peroni's recognized gain in the current and subsequent year, respectively?

Explain whether the sale of a machine used in a trade or business that is sold at a loss generates an ordinary or capital loss?

Why does §1250 recapture generally no longer apply?

Arlington LLC exchanged land used in its business for some new land. Arlington originally purchased the land 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 gain or loss recognized on the exchange?

Assets held for investment and personal use assets are examples of capital 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 32 percent, what effect do the gains and losses have on Brandon's tax liability?

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