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Exam 17: Property Transactions Section 1231 and Recapture Provisions

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Question 1

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Section 1231 property generally includes certain purchased intangible assets (such as patents and goodwill)that are eligible for amortization and held for more than one year.

A) True
B) False

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Question 2

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The Code contains two major depreciation recapture provisions: § 1245 and § 1250.

A) True
B) False

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Question 3

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Depreciation recapture under § 1245 and § 1250 is reported on Form 4797.

An individual had the following gains and losses during 2016 on property held for the long-term holding period: sale of Orange common stock ($8,000 gain) ;sale of real property used in the taxpayer's business ($1,800 loss) ;destruction of real property used in the taxpayer's business by fire ($1,000 loss) .Which of the following statements is correct?

Vanna owned an office building that had been held more than one year when it was sold for $567,000.The real estate had an adjusted basis of $45,000 for the land and $233,000 for the building.Straight-line depreciation of $162,000 had been taken on the building.What is the amount and initial character of the gain or loss from disposition of the real estate? Is any of the gain unrecaptured § 1250 (25%)gain?

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

Section 1250 depreciation recapture will apply when accelerated depreciation was used on property used outside the United States and the property is sold at a gain.

In 2016 Angela,a single taxpayer with no dependents,disposed of for $44,000 a business building which cost $100,000.$60,000 of depreciation had been taken on the building.Angela has a short-term capital loss of $3,000 this year.She has taxable income (not related to property transactions)of $125,000.She has no § 1231 lookback loss.What is the amount and nature of the gain or loss,what is Angela's taxable income,and what is her tax on the taxable income?

Verway,Inc. ,has a 2016 net § 1231 gain of $55,000 and had a $62,000 net § 1231 loss in 2015.For 2016,Verway's net § 1231 gain is treated as:

If there is a net § 1231 loss,it is treated as an ordinary loss.

White Company acquires a new machine for $75,000 and uses it in White's manufacturing operations.A few months after White places the machine in service,it discovers that the machine is not suitable for White's business.White had fully expensed the machine in the year of acquisition using § 179.White sells the machine for $60,000 in the tax year after it was acquired,but held the machine only for a total of 10 months.What was the tax status of the machine when it was disposed of and the amount of the gain or loss?

Betty,a single taxpayer with no dependents,has the gains and losses shown below.Before considering these transactions,Betty has $45,000 of other taxable income.What is the treatment of the gains and losses and what is Betty's taxable income? § 1245 gain #1 $18,000 § 1245 gain #2 5,000 Business equipment long-term casualty loss (8,000) Business real property long-term casualty gain 12,000 § 1231 gain 13,000 § 1231 lookback loss (2,000)

Section 1231 lookback losses may convert some or all of § 1245 gain into ordinary income.

An individual taxpayer has the gains and losses shown below.There are $3,000 of § 1231 lookback losses.What is the net long-term capital gain? Holding Period/Property Character of Gain or Loss Amount 5 years/vacant land § 1231 gain $7,000 2 years/business equipment § 1245 gain 3,200 3 years/publicly traded stock Long-term capital gain 890 8 months/publicly traded stock Short-term capital loss (1,870)

Section 1231 property generally does not include artistic compositions.

Casualty gains and losses from nonpersonal use assets are not netted against casualty gains and losses from personal use assets.

A personal use property casualty loss is generally deductible only to the extent it exceeds 10% of AGI.

Which of the following is correct?

A business machine purchased April 10,2015,for $62,000 was fully depreciated in 2015 using § 179 immediate expensing.On August 15,2016,the sole proprietor who owned the machine gave it to his son.On that date,the machine's fair market value was $57,000.The son did not use the machine in business or hold it as inventory and the machine was sold on November 22,2016,for $53,000.What is the amount and nature of the gain or loss from disposition of the machine? Where is it reported in the son's tax return?

Business equipment is purchased on March 10,2015,used in the business until September 29,2015,and sold at a $23,000 loss on October 10,2015.The equipment was not suitable for the work the business had purchased it for.The loss on the disposition should have been reported in the 2015 Form 4797,Part: