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Exam 17: Property Transactions: 1231 and Recapture Provisions

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Question 21

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In 2017 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?

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The adjusted basis of the building is $4...

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Question 22

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Once § 1231 gains are netted against § 1231 losses, if the gains exceed the losses, the net gain is offset by the "lookback" nonrecaptured § 1231 losses.

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Question 23

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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?

The § 1245 depreciation recapture potential does not reduce the amount of the charitable contribution deduction under § 170.

Which of the following creates potential § 1245 depreciation recapture and potential § 1231 gain?

The following assets in Jack's business were sold in 2017: ​ The office equipment had a zero adjusted basis and was purchased for $8,000. The automobile was purchased for $2,000 and sold for $1,200. The ABC stock was purchased for $1,800 and sold for $3,200. In 2017 (the year of sale) , Jack should report what amount of net capital gain and net ordinary income?

Why is it generally better to have a net § 1231 gain year followed by a net § 1231 loss year rather than a net § 1231 loss year followed by a net § 1231 gain year?

Copper Corporation sold machinery for $47,000 on December 31, 2017. The machinery had been purchased on January 2, 2014, for $60,000 and had an adjusted basis of $41,000 at the date of the sale. For 2017, what should Copper Corporation report?

An individual has the following recognized gains and losses from disposition of § 1231 assets (all the assets were vacant land) : $15,000 gain, $10,000 loss, $25,000 gain, and $2,000 loss. The individual has a $5,500 § 1231 lookback loss. The individual also has a $16,000 net short-term capital loss from the disposition of stock. Which of the following statements is correct?

Section 1231 gain that is treated as long-term capital gain carries from the 2016 Form 4797 to the 2016 Form 1040, Schedule D, line ____.

Which of the following events could result in § 1250 depreciation recapture?

The maximum amount of the unrecaptured § 1250 gain (25% gain) is the depreciation taken on real property sold at a recognized gain.

Charmine, a single taxpayer with no dependents, has already incurred a $10,000 § 1231 gain in 2017 and has no § 1231 lookback losses. The taxpayer purchased a business machine for $100,000 five years ago, $70,000 of depreciation has been taken on it, and the machine is now worth $90,000. How will the net § 1231 gain or loss be affected if the taxpayer trades in the business machine for a like-kind business machine and pays an additional $12,000 in cash to obtain the replacement machine? If Charmine already has $352,000 of taxable income which does not include a $10,000 § 1231 gain or any capital gains or losses, what is her taxable income?

A barn held more than one year and used in a business is destroyed in a tornado. The barn originally cost $356,000 and was fully depreciated using straight-line depreciation. The barn was insured for its $543,000 replacement cost minus a deductible of $1,000. Which of the statements below is correct concerning these facts?

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?

Assume a building is subject to § 1250 depreciation recapture because bonus depreciation [§ 168(k) was used]. The building is destroyed in a hurricane and this is the taxpayer's only casualty or theft for the year. In which of the following situations could there be a § 1250 depreciation recapture gain?

Describe the circumstances in which the potential § 1245 depreciation recapture is extinguished.

Vertical, Inc., has a 2017 net § 1231 gain of $67,000 and had a $22,000 net § 1231 loss in 2016. For 2017, Vertical's net § 1231 gain is treated as:

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.

An individual business taxpayer owns land on which he grows trees for logging. The land has been held more than 10 years and the trees growing on the land were planted eight years ago. Normally, the timber would be inventory for this taxpayer, but the tax law allows the taxpayer to elect to treat cutting the timber as the disposition of a § 1231 asset.