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Exam 10: Property Dispositions

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Question 1

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

A) Capital and Ordinary.
B) Ordinary only.
C) Capital and §1231.
D) §1245 and §1231.
E) None of these.

F) A) and B)
G) A) and E)

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Question 2

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A parcel of land is always a capital asset.

A) True
B) False

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Question 3

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The gain or loss realized is the amount realized less the adjusted basis.

For a like-kind exchange, realized gain is deferred if the exchange is solely for like-kind property.

Each of the following is true except for:

In a deferred like-kind exchange the like-kind property to be received must be identified within 45 days and acquired within 180 days from the initial exchange.

Sadie sold 10 shares of stock to her brother, George, for $500 six months ago. Sadie had purchased the stock for $600 two years earlier. If George sells the stock for $700, what is the amount and character of his recognized gain or loss in the current year?

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

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?

Odintz traded machinery for machinery. Odintz originally purchased its machine for $150,000 and the adjusted basis was $90,000 at the time of the exchange. The machinery received was purchased for $200,000, had an adjusted basis of $155,000 at the time of the exchange, and was subject to a mortgage of $50,000 that was paid off before the transfer. What is Odintz's adjusted basis in the new machinery after the exchange?

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

Only accelerated depreciation is recaptured for §1245 assets.

The amount realized is the sale proceeds less the adjusted basis.

The sale of computer equipment used in a trade or business for 9 months results in the following type of gain or loss?

Sunshine LLC sold furniture for $75,000. Sunshine bought the furniture for $90,000 several years ago and has claimed $25,000 of depreciation expense on the machine. What is the amount and character of Sunshine's gain or loss?

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

Which one of the following is not a requirement of a deferred like-kind exchange?

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?

Tyson had a parcel of undeveloped investment land that he wanted to trade for a warehouse to be used in his business. He found a buyer willing to pay him $450,000 for the land. He transferred the land to a third party intermediary on April 1st of the current year. On May 10th, with the help of a commercial real estate agent, Tyson identified two suitable warehouses. On August 10th he made an offer on the first building which was rejected. On August 13th an offer was accepted on the second warehouse. On September 23rd the third party intermediary transferred $500,000 ($450,000 from the original property plus $50,000 from Tyson) to the seller and conveyed title to the warehouse to Tyson. Explain whether the exchange of property qualifies as a like-kind exchange.

Which of the following may qualify as an installment sale?