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Exam 11: Property Dispositions

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Question 51

Multiple Choice

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Brandon, an individual, began business four years ago and has sold §1231 assets with $5,000 of losses within the last 5 years. Brandon owned each of the assets for several years. In the current year, Brandon sold the following business assets: Assuming Brandon's marginal ordinary income tax rate is 32 percent, what effect do the gains and losses have on Brandon's tax liability? Use Dividends and Capital Gains Tax Rates for reference.

A) $25,000 ordinary income, $8,000 tax liability.
B) $25,000 §1231 gain and $3,750 tax liability.
C) $13,000 §1231 gain, $12,000 ordinary income, and $5,790 tax liability.
D) $12,000 §1231 gain, $13,000 ordinary income, and $5,960 tax liability.
E) None of the choices are correct.

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

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Question 52

Multiple Choice

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

A) The basis is equal to the fair market value of the new property.
B) The basis is equal to the fair market value of the old property.
C) The basis is equal to the adjusted basis of the old property.
D) The basis is equal to the cost basis of the old property.
E) All of the choices are correct.

F) C) and D)
G) B) and E)

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Question 53

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

Foreaker LLC sold a piece of land that it uses in its business for $52,000. Foreaker bought the land two years ago for $42,500. What is the amount and character of Foreaker's gain?

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?

An installment sale is any sale where at least a portion of the sales proceeds is received in a subsequent taxable year.

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

§1239 recharacterizes 50 percent of the gain on sales to a related party as ordinary income.

Bull Run sold a computer for $1,200 on November 10ᵗʰ of the current year. The computer was purchased for $2,800. Bull Run had taken $1,000 of depreciation deductions. What is Bull Run's gain or loss realized on the computer?

Redoubt LLC exchanged an office building used in its business for a rental house. Redoubt originally purchased the building for $80,000 and it had an adjusted basis of $53,000 at the time of the exchange. The rental house had a fair market value of $62,000. Redoubt also received $7,000 of cash in the transaction. What is Redoubt's gain or loss recognized on the exchange? What is Redoubt's basis in the rental house?

The gain or loss realized on the sale of an asset is the amount realized less the adjusted basis.

Losses on sales between related parties are realized but not recognized.

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?

Sarah sold 1,000 shares of stock to her brother, David, for $18,000 more than a year ago. 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?

Misha traded computer equipment used in her business to a computer dealer for some new computer equipment. Misha originally purchased the computer equipment for $15,000 and it had an adjusted basis of $11,000 at the time of the exchange. The computer equipment was worth $12,000 at the time of the exchange. Misha also received a used copier worth $2,000 in the transaction. What is Misha's realized and recognized gain/loss on the exchange?

Which of the following is True regarding depreciation recapture?

After application of the look-back rule, net §1231 gains become capital while net §1231 losses become ordinary.

Unrecaptured §1250 gain is taxed at a maximum rate of 25 percent.

A loss realized for property destroyed in a hurricane is deferred under the involuntary conversion rules.

Which of the following is not a §1245 asset if held for more than one year?