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Exam 11: Property Dispositions

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Question 61

True/False

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Taxpayers can recognize a taxable gain on the sale of an asset even though an asset's real economic value has declined.

A) True
B) False

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Question 62

Multiple Choice

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The sale of land held for investment results in which of the following types of gain or loss?

A) Capital.
B) Ordinary.
C) §1231.
D) §1245.
E) None of the choices are correct.

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

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Question 63

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For an installment sale, the gross profit percentage is the gain recognized divided by the gain realized.

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

A simultaneous exchange must take place for a transaction to qualify as a like-kind exchange.

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

Which of the following transactions results solely in §1245 gain?

The adjusted basis is the initial basis less cost recovery deductions.

Bull Run sold a computer for $1,200 on November 10 ^th 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?

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.

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

Alpha sold machinery that it used in its business to Beta, a related entity, for $40,400. Beta used the machinery in its business. Alpha bought the machinery a few years ago for $49,600 and has claimed $30,400 of depreciation expense. What is the amount and character of Alpha's gain?

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?

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?

Residential real property is not like-kind with nonresidential real property.

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?

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

Which of the following results in an ordinary gain or loss?

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: Assuming Brandon's marginal ordinary income tax rate is 32 percent, what effect do the gains and losses have on Brandon's tax liability?

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?