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Exam 11: Property Dispositions

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Question 41

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Explain whether the sale at a loss of a machine used in a trade or business generates an ordinary or capital loss?

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The sale at a loss of a machine used in ...

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Question 42

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

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Question 43

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

Buzz Corporation sold an office building that it used in its business for $500,000.Buzz bought the building 10 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?

Which one of the following is not considered boot in a like-kind exchange?

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: $\begin{array} { l r r r r } & & { \text { Accurmulated } } & \\\text { Asset } & \text { Original Cost } & \text { Depreciation } & { \text { Gair/Loss } } \\\text { Machirzery } & \$ 12,000 & \$7 , 000 & \$ 6,000 \\\text { Funiture } & 10,000& 2,000 & ( 3,000 ) \\\text { Building } & 90,000 & 20,000 & 15,000\end{array}$ Assuming Suzanne'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 Suzanne's tax liability?

Which of the following is not true regarding an asset's adjusted basis?

Jessie sold a piece of land held for investment for $250,000.Jessie bought the land two years ago for $195,000.What is the amount and character of Jessie's gain?

The general rule regarding the exchanged basis in the new property received in a like-kind exchange is:

Brandon, an individual, began business four years ago and has never sold a §1231 asset.Brandon owned each of the assets for several years.In the current year, Brandon sold the following business assets: $\begin{array} { l r r r r } & & { \text { Accurmulated } } \\\text { Asset } & \text { Original Cost } & \text { Depreciation } & \text { Gair/Loss } \\\text { Machirzery } & \$ 30,000 & \$ 7,000 & \$ 10,000 \\\text { Computers } & 10,006 & 6,000 & ( 2,000 ) \\\text { Building } & 90,000 & 20,000 & ( 2,000 ) \end{array}$ Assuming Brandon's marginal ordinary income tax rate is 32 percent, what effect do the gains and losses have on Brandon's tax liability?

Silver sold machinery that it used in its business to Gold, a related entity, for $55,000.Silver bought the equipment a few years ago for $50,000 and has claimed $15,000 of depreciation expense.What is the amount and character of Silver's gain?

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

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

Alpha sold machinery that it used in its business to Beta, a related entity, for $40,000.Beta used the machinery in its business.Alpha bought the machinery a few years ago for $50,000 and has claimed $30,000 of depreciation expense.What is the amount and character of Alpha's gain?

§1231 assets include all assets used in a trade or business.

Which of the following may qualify as an installment sale?

Realized gains are recognized unless there is specific exception.

How long after the initial exchange does a taxpayer have to identify replacement property in a like-kind exchange?

Only accelerated depreciation is recaptured for §1245 assets.

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.