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Exam 10: Property Dispositions

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Question 21

Multiple Choice

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Mary exchanged an office building used in her business for some land.Mary originally purchased the building for $45,000 and it had an adjusted basis of $20,000 at the time of the exchange.The land had a fair market value of $40,000.Mary also gave $4,000 to the  in the transaction.What is Mary's adjusted basis in the land after the exchange?

A) $20,000.
B) $24,000.
C) $36,000.
D) $40,000.
E) None of the choices are correct.

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

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Question 22

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What is the character of land used in an active trade or business for two years?

A) Capital.
B) Ordinary.
C) §1231.
D) Investment.
E) None of the choices are correct.

F) A) and D)
G) D) and E)

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Question 23

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Sandra sold some equipment for $10,000 in cash,$1,000 of office products,the buyer assumption of her $1,500 loan,and incurred selling expenses of $500.What is the Sandra's amount realized in the transaction?

After application of the look-back rule,net §1231 gains become capital while net §1231 losses become ordinary.

What is the primary purpose of a third-party intermediary in a deferred like-kind exchange?

A taxpayer that receives boot in a like-kind exchange resulting in a gain recognizes as gain the lesser of the fair market value of the boot received or the gain realized.

Winchester LLC sold the following business assets during the current year: (1) automobile,$30,000 cost basis,$12,000 depreciation,proceeds $20,000; (2) machinery,$25,000 cost basis,$20,000 depreciation,proceeds $10,000; (3) furniture,$15,000 cost basis,$10,000 depreciation,proceeds $4,000; (4) computer equipment,$25,000 cost basis,$6,000 depreciation,proceeds $10,000; (5) Winchester had unrecaptured §1231 losses of $3,000 in the prior 5 years.What is 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.

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

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: $\begin{array}{lccc}&&\text { Accumulated }\\\text {Asset}&\text { Original Cost } & \text { Depreciation } & {\text { Gain/Loss }} \\\text {Machinery}&\$ 12,000& \$ 7,000 & \$ 6,000 \\\text {Furniture}&10,000& 2,000 & 3,000 \\\text {Building}&90,000 & 20,000 & (5,000)\end{array}$ 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?

Which of the following is not true regarding installment sales?

Which of the following is not an involuntary conversion?

Redoubt LLC exchanged an office building used in its business for a rental house.Redoubt originally purchased the building for $80,000 and it had an adjusted basis of $53,000 at the time of the exchange.The rental house had a fair market value of $62,000.Redoubt also received $7,000 of cash in the transaction.What is Redoubt's gain or loss recognized on the exchange? What is Redoubt's basis in the rental house?

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?

Which of the following is not true regarding §1239?

Unrecaptured §1250 gains apply only to individuals.

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

Butte sold a machine to a machine dealer for $50,000.Butte bought the machine for $55,000 several years ago and has claimed $12,500 of depreciation expense on the machine.What is the amount and character of Butte's gain or loss?

§1239 recharacterizes 50 percent of the gain on sales to a related party as ordinary income.

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

Which of the following gains does not result solely in an ordinary gain or loss?