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Exam 8: Property Transactions: Capital Gains and Losses

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Question 1

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Tan, Inc., sold a forklift on April 12, 2018, for $8,000 its FMV) to its 100% shareholder, Ashley.Tan's adjusted basis for the forklift was $12,000.Ashley's holding period for the forklift:

A) Includes Tan's holding period for the forklift.
B) Begins on April 12, 2018.
C) Begins on April 13, 2018.
D) Does not begin until Ashley sells the forklift.
E) None of the above.

F) A) and D)
G) A) and E)

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C

Question 2

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Which of the following creates potential § 1245 depreciation recapture and potential § 1231 gain?

A) Depreciable office furniture held more than one year and sold for more than its original cost.
B) Amortizable goodwill held more than one year and disposed of for less than its adjusted basis.
C) Land held more than one year and sold for more than was paid for it.
D) A note receivable held more than one year and sold for less than was paid for it.
E) None of the above.

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

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Question 3

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Which of the following statements is correct?

Orange Company had machinery destroyed by a fire on December 23, 2018.The machinery had been acquired on April 1, 2016, for $49,000 and its adjusted basis was $14,200.The machinery was completely destroyed and Orange received $30,000 of insurance proceeds for the machine and did not replace it.This was Orange's only casualty or theft event for the year.As a result of this event, Orange has:

Which of the following comparisons is correct?

A franchisor licenses its mode of business operation to a franchisee.

Recognized gains and losses from disposition of a capital asset may occur as a result of a:

For § 1245 recapture to apply, accelerated depreciation must have been taken on the property.

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

There can be three subgroups within the long-term capital gain or loss group - 0%/15%/20%, 25%, and 28%.

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

A corporation has a $50,000 short-term capital loss for the year.The corporation has $1,200,000 of taxable income from other sources.The taxable income for the year is $1,200,000.

Section 1231 lookback losses may convert some or all of § 1245 gain into ordinary income.

The tax law requires that capital gains and losses be separated from other types of gains and losses because an alternative tax calculation may be used when taxable income includes net long-term capital gain.

A retail building used in the business of a sole proprietor is sold on March 10, 2018, for $342,000.The building was acquired in 2008 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?

White Company acquires a new machine for $75,000 and uses it in White's manufacturing operations.A few months after White places the machine in service, it discovers that the machine is not suitable for White's business.White had fully expensed the machine in the year of acquisition using § 179.White sells the machine for $60,000 in the tax year after it was acquired, but held the machine only for a total of 10 months.What was the tax status of the machine when it was disposed of and the amount of the gain or loss?

Business equipment is purchased on March 10, 2017, used in the business until September 29, 2017, and sold at a $23,000 loss on October 10, 2017.The equipment was not suitable for the work the business had purchased it for.The loss on the disposition should have been reported in the 2017 Form 4797, Part:

Emilio owns vacant land he is holding for investment.Two years ago he granted an option to purchase the land.The option grantee paid $25,000 for the option.This year the option expired unexercised.As a result, Emilio has:

Section 1250 depreciation recapture will apply when accelerated depreciation was used on property used outside the United States and the property is sold at a gain.

Depreciation recapture under § 1245 and § 1250 is reported on Form 4797.