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Exam 14: Property Transactions: Capital Gains and Losses, 1231, and Recapture Provisions

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Question 21

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Willie is the owner of vacant land that he purchased in 2010 for $1,400,000 and held for investment. On January 22, 2013, he was paid $145,000 for a thirteen-month option on the land by Susan. Susan could buy the land for an additional $1,200,000 by exercising the option. Susan had hoped to build a luxury home on the land, but was unable to get approval to build a big enough home to satisfy her needs. Consequently, Susan did not exercise her option and the option expired on February 22, 2014. (1) What is Willie's basis, gain or loss, and type of gain or loss from these events? (2) What is Susan's basis, gain or loss, and type of gain or loss from these events?

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(1) Willie held the land for investment;...

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Question 22

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

A) Sale at a loss of a depreciable business building held more than one year.
B) Sale at a gain of a business building held more than a year on which straight-line depreciation was taken.
C) Sale at a loss of a depreciable business building held for 9 months.
D) Sale at a gain of depreciable equipment held more than a year on which straight-line depreciation was taken.
E) None of the above.

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

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Question 23

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A lessor is paid $45,000 by its commercial tenant as a lease cancellation fee. The tenant wanted to get out of its lease so it could move to a different building. The lessor had held the lease for three years before it was canceled. The lessor had a zero tax basis for the lease. The lessor has received:

Jambo invented a new flexible cover for a popular brand of cellphone, but did not have the finances to begin production of the cover. Instead, he sold all his rights to the invention (after patenting it) for $450,000 plus $.10 for each cover sold by the company that purchased the patent. Jambo had a zero tax basis for the invention. What is the character of his gain from disposition of the patent?

On June 1, 2014, Brady purchased an option to buy 1,000 shares of General, Inc. at $40 per share. He purchased the option for $3,000. It was to remain in effect for five months. The market experienced a decline during the latter part of the year, so Brady decided to let the option lapse as of December 1, 2014. On his 2014 tax return, what should Brady report?

The chart below details Sheen's 2012, 2013, and 2014 stock transactions. What is the capital loss carryover to 2014 and what is the net capital gain or loss for 2014? Short-term Short-term Long-term Long-term Tax Year Capital Gains Capital Losses Capital Gains Capital Losses 2012 $4,000 $ 6,000 $ 2,000 $13,000 2013 $16,000 $14,000 $23,000 $28,000 2014 $55,000 $52,000 $67,000 $33,000

Cason is filing as single and has 2014 taxable income of $36,000 which includes $34,000 of 0%/15%/20% net long- term capital gain. What is his tax on taxable income using the alternative tax method?

Ryan has the following capital gains and losses for 2014: $6,000 STCL, $5,000 28% gain, $2,000 25% gain, and $6,000 0%/15%/20% gain. Which of the following is correct:

Lynne owns depreciable residential rental real estate which has accumulated depreciation (all from straight-line) of $65,000. If Lynne sold the property, she would have a $53,000 gain. The initial characterization of the gain would be:

Hank inherited Green stock from his mother when she died. The mother had a tax basis of $366,000 for the Green stock when she died and the Green stock was worth $437,000 at the date of her death. Which of the statements below is correct?

Which of the following is correct?

Section 1231 property generally does not include accounts receivables arising in the ordinary course of business.

Mike is a self-employed TV technician. He is usually paid as soon as he completes repairs, but occasionally bills a customer with payment expected within 30 days. At the end of the year he has $2,500 of receivables outstanding. He expects to collect $1,200 of this and write off the remainder. Mike is a cash basis taxpayer and had net earnings from his business (not including the effect of the items above) of $55,000. He also had $3,500 interest income, $200 gambling winnings, and sold corporate stock for $7,000. The stock had been purchased in 2011 for $8,200. Mike is single, has no dependents, and claims the standard deduction. What is his 2014 taxable income? (Ignore the self- employment tax deduction.)

In early 2013, Wanda paid $33,000 for an option on a parcel of land she intended to hold as an investment. After a survey of the land (paid for by the grantor) determined that the parcel was much smaller than the grantor said it was, she let the option lapse when it expired in 2014 after 14 months. How should Wanda treat these events in 2013? 2014?

A retail building used in the business of a sole proprietor is sold on March 10, 2014, for $342,000. The building was acquired in 2004 for $400,000 and straight-line depreciation of $104,000 had been taken on the building. What is the maximum unrecaptured § 1250 gain from the disposition of this building?

Lease cancellation payments received by a lessor are always ordinary income because they are considered to be in lieu of rental payments.

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

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

Vertical, Inc., has a 2014 net § 1231 gain of $67,000 and had a $22,000 net § 1231 loss in 2013. For 2014, Vertical's net § 1231 gain is treated as:

The only things that the grantee of an option may do with the option are exercise it or let it expire.