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Exam 14: Property Transactions: Capital Gains and Losses, 1231, Recapture Provisions

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Question 51

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Which of the following is correct?

A) Improperly classifying a § 1231 loss as a capital loss might affect adjusted gross income.
B) Improperly classifying a capital loss as a § 1231 loss might affect adjusted gross income.
C) Misclassifying a § 1231 gain as a short-term capital gain might affect adjusted gross income.
D) Misclassifying a short-term capital gain as a § 1231 gain might affect adjusted gross income.
E) All of the above.

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

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Question 52

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Larry was the holder of a patent on a video game.During 2012, he sold all substantial rights in the patent for $345,000 in cash and a 3% royalty on the purchaser's first $10,200,000 of sales each year related to the product in which the patent is incorporated.Larry had not reduced the patent to practice.He had a $56,000 basis for the patent.During 2012, he received $10,000 in royalties.What is the nature and amount of Larry's gain?

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Larry was the holder of a patent and tra...

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Question 53

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Which of the following would not be included in the netting of § 1231 gains and losses?

In 2012, Satesh has $5,000 short-term capital loss, $13,000 0%/15% long-term capital gain, and $7,000 qualified dividend income.Satesh is single and has other taxable income of $15,000.Which of the following statements is correct?

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

A business taxpayer trades in a used fully depreciated machine on a replacement machine. Because the machine traded in was worth more than the replacement machine, the taxpayer received cash in the transaction.Assume the used machine originally cost $100,000, was worth $32,000 when it was traded in, and the replacement machine was worth $20,000. Consequently, the taxpayer received $12,000 cash in the transaction.Is there recognized gain in this transaction and, if so, what type of gain?

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

Section 1231 property generally does not include musical compositions.

Willie is the owner of vacant land that he purchased in 2008 for $1,400,000 and held for investment.On January 22, 2011, he was paid $145,000 for a thirteen-month option on the land by Susan.Susan could buy the land for an additional $1,200,000 by exercising the option.Susan had hoped to build a luxury home on the land, but was unable to get approval to build a big enough home to satisfy her needs.Consequently, Susan did not exercise her option and the option expired on February 22, 2012.(1) What is Willie's basis, gain or loss, and type of gain or loss from these events? (2) What is Susan's basis, gain or loss, and type of gain or loss from these events?

What characteristics must the seller of a patent have in order to be classified as a holder?

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.

An individual taxpayer has the gains and losses shown below.There are $3,000 of § 1231 lookback losses.What is the net long-term capital gain?

A lessor is paid $45,000 by its commercial tenant as a lease cancellation fee. The tenant wanted to get out of its lease so it could move to a different building. The lessor had held the lease for three years before it was canceled. The lessor had a zero tax basis for the lease. The lessor has received:

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

A business taxpayer sold all the depreciable assets of the business, calculated the gains and losses, and would like to know the final character of those gains and losses.The taxpayer had $353,000 of adjusted gross income before considering the gains and losses from sale of the business assets.The taxpayer had unrecaptured § 1231 lookback loss of $12,000.What is the treatment of the gains and losses summarized in the chart below after all possible netting and reclassification has been completed? What is the taxpayer's adjusted gross income? (Ignore the self-employment tax deduction.)

Magenta, Inc., sold a forklift on April 12, 2012, for $3,000 (its FMV) to its 100% shareholder, Anna. Magenta's adjusted basis for the forklift was $8,000.Anna's holding period for the forklift:

Which of the following events causes the purchaser of an option to add the cost of the option to the basis of the property to which the option relates?

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

Section 1239 (relating to the sale of certain property between related taxpayers) does not apply unless the property:

Theresa and Oliver, married filing jointly, and both over 65 years of age, have no dependents.Their 2012 income tax facts are: What is their taxable income for 2012?