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Exam 17: Property Transactions Section 1231 and Recapture Provisions

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Question 31

Multiple Choice

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Which of the following assets held by a manufacturing business is a § 1231 asset?

A) Inventory.
B) Office furniture used in the business and held less than one year.
C) A factory building used in the business and held more than one year.
D) Accounts receivable.
E) All of the above.

F) B) and D)
G) A) and B)

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Question 32

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Vertigo,Inc. ,has a 2016 net § 1231 loss of $64,000 and had a $32,000 net § 1231 gain in 2015.For 2016,Vertigo's net § 1231 loss is treated as:

A) Ordinary loss.
B) Ordinary gain.
C) Capital loss.
D) Capital gain.
E) None of the above.

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

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Question 33

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Why is it generally better to have a net § 1231 gain year followed by a net § 1231 loss year rather than a net § 1231 loss year followed by a net § 1231 gain year?

Red Company had an involuntary conversion on December 23,2016.The machinery had been acquired on April 1,2014,for $49,000 and its adjusted basis was $14,200.The machinery was completely destroyed by fire and Red received $10,000 of insurance proceeds for the machine and did not replace it.This was Red's only casualty or theft event for the year.As a result of this event,Red initially has:

Which of the following statements is correct?

Section 1245 may apply to amortizable § 197 intangible assets.

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

A sheep must be held more than 18 months to qualify as a § 1231 asset.

Section 1245 depreciation recapture potential does not carryover from the deceased taxpayer to the beneficiary taxpayer.

The following assets in Jack's business were sold in 2016: Asset Holding Period Gain/(Loss) Office Equipment 6 years $1,100 Automobile 8 months ($ 800) ABC Stock (capital asset) 2 years $1,400 ​ The office equipment had a zero adjusted basis and was purchased for $8,000.The automobile was purchased for $2,000 and sold for $1,200.The ABC stock was purchased for $1,800 and sold for $3,200.In 2016 (the year of sale) ,Jack should report what amount of net capital gain and net ordinary income?

Part III of Form 4797 is used to report gains from the sale of depreciable business equipment sold at a gain and held more than one year.

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

A retail building used in the business of a sole proprietor is sold on March 10,2016,for $342,000.The building was acquired in 2006 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?

An individual has the following recognized gains and losses from disposition of § 1231 assets (all the assets were vacant land) : $15,000 gain,$10,000 loss,$25,000 gain,and $2,000 loss.The individual has a $5,500 § 1231 lookback loss.The individual also has a $16,000 net short-term capital loss from the disposition of stock.Which of the following statements is correct?

Which of the following would extinguish the § 1245 recapture potential?

Copper Corporation sold machinery for $47,000 on December 31,2016.The machinery had been purchased on January 2,2013,for $60,000 and had an adjusted basis of $41,000 at the date of the sale.For 2016,what should Copper Corporation report?

Describe the circumstances in which the maximum unrecaptured § 1250 gain (25% gain)does not become part of the Schedule D netting process for an individual taxpayer?

Vertical,Inc. ,has a 2016 net § 1231 gain of $67,000 and had a $22,000 net § 1231 loss in 2015.For 2016,Vertical's net § 1231 gain is treated as:

Which of the following events could result in § 1250 depreciation recapture?

Orange Company had machinery destroyed by a fire on December 23,2016.The machinery had been acquired on April 1,2014,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: