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Exam 11: Property Dispositions

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Question 41

Multiple Choice

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When does unrecaptured §1250 gains apply?

A) When the taxpayer makes the election.
B) It applies only when non-corporate taxpayers sell depreciable real property at a gain.
C) It applies when §1245 recapture trumps §1250 recapture.
D) It applies only when real property purchased before 1986 is sold at a gain.
E) None of the choices are correct.

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

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Question 42

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An asset's tax adjusted basis is usually greater than its book adjusted basis.

A) True
B) False

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Question 43

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Sadie sold 10 shares of stock to her brother, George, for $500 sixteen 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?

Only accelerated depreciation is recaptured for §1245 assets.

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

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.

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

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.

The §1231 look-back rule recharacterizes §1231 gains if §1231 losses have created ordinary losses in the last 5 years.

Collins Corporation, of Camden, Maine, wants to exchange its manufacturing facility for Rockland Company's building. Both parties agree that Collins's facility is worth $200,000 and that Rockland's building is worth $175,000. Collins will not enter into the transaction unless it qualifies as a like-kind exchange. If Collins wants to avoid gain, what could the parties do to equalize the value exchanged but still allow the exchange to qualify as a like-kind exchange?

Frederique sold furniture that she uses in her business for $15,000. Frederique bought the furniture a few years ago for $40,000 and has claimed $20,000 of depreciation expense. What is the amount and character of Frederique's gain or loss?

Silver sold machinery to Gold, a related entity, which it used in its business 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 gain or loss realized on the sale of an asset is always recognized for tax purposes.

Which of the following is how gain or loss realized is calculated?

Leesburg sold a machine for $2,200 on November 10ᵗʰ 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?

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

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?

Which of the following realized gains results in a recognized gain?

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

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