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Exam 3: Property Dispositions

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Question 1

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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?

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$25,000 ordinary gain, and $10,000 §1231...

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Question 2

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

A) To facilitate finding replacement property.
B) To help acquire the replacement property.
C) To prevent the seller from receiving cash (boot) that will taint the transaction.
D) To certify the taxpayer's Form 8824.
E) All of these

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

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Question 3

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Buzz Corporation sold an office building that it used in its business for $500,000. Buzz bought the building ten years ago for $650,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Buzz's gain or loss?

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?

An asset's tax adjusted basis is usually greater than its book adjusted basis. Because businesses generally use more highly accelerated depreciation methods for tax purposes than they do for book purposes, the tax-adjusted basis of a particular asset is likely to be lower than the book-adjusted basis.

Which of the following sections does not recapture or recharacterize a taxpayer's gain?

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

Sarah sold 1,000 shares of stock to her brother, David, for $18,000 last year. Sarah had purchased the stock for $20,000 several years earlier. What is the amount and character of David's recognized gain or loss in the current year if he sells the stock for $15,000 and $25,000, respectively?

Manassas purchased a computer several years ago for $2,200. On November 10^th of the current year, the computer was worth $800. If $1,000 of depreciation deductions had been taken, what is Manassas' tax adjusted basis for the computer?

Which of the following is true regarding disallowed losses between related taxpayers?

Bozeman sold equipment that it uses in its business for $80,000. Bozeman bought the equipment two years ago for $75,000 and has claimed $20,000 of depreciation expense. What is the amount and character of Bozeman's gain or loss?

Unrecaptured §1250 gains apply only to individuals.

Which of the following is not usually included in an asset's tax basis?

Leesburg sold a machine for $2,200 on November 10^th of the current year. The machine was purchased for $2,600. Leesburg had taken $1,200 of depreciation deductions on the machine through the date of the sale. What is Leesburg's gain or loss realized on the machine?

Kristi had a business building destroyed in an earthquake. The old building was purchased for $250,000 and $80,000 of depreciation deductions had been taken. Her insurance proceeds were $550,000. Although the replacement property was much larger and nicer than her old building, Kristi's new property qualified as replacement property. She acquired the new property 13 months after the earthquake for $620,000. What is the amount of Kristi's realized gain and recognized gain and the basis in her new property?

Residential real property is not like-kind with non-residential real property.

The sale of land held for investment results in the following type of gain or loss?

Which of the following is not used in the calculation of the amount realized?

§1250 recaptures the excess of accelerated depreciation over straight line depreciation on real property placed in service between 1981 and 1986 as ordinary income.

Suzanne, an individual, began business four years ago and has never sold a §1231 asset. Suzanne owned each of the assets for several years. In the current year, Suzanne sold the following business assets: Assuming Suzanne's marginal ordinary income tax rate is 35 percent, what is the character of the gains and losses and what affect do they have on Suzanne's tax liability? $\begin{array} { | l | r | r | r | } \hline \text { Asset } & \begin{array} { r } \text { Original } \\\text { Cost }\end{array} & \begin{array} { r } \text { Accumulated } \\\text { Depreciation }\end{array} & \text { Gain/Loss } \\\hline \text { Machinery } & \$ 12,000 & \$ 7,000 & \$ 6,000 \\\hline \text { Furniture } & 10,000 & 2,000 & ( 3,000 ) \\\hline \text { Building } & 90,000 & 20,000 & 15,000 \\\hline\end{array}$