Question 1

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:

Accepted Answer

A)  Ordinary income of $45,000.
B)  Long-term capital gain of $45,000.
C)  Short-term capital gain of $45,000.
D)  Neither gain nor loss.
E)  None of the above.F) C) and E)
G) A) and B)

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Short-term capital losses are netted against long-term capital gains and long-term capital losses are netted against short-term capital gains.

Accepted Answer

A) True 
 B)False

Question 4

The maximum § 1245 depreciation recapture generally equals the accumulated depreciation.

Accepted Answer

A) True 
 B)False

Question 5

Vertical,Inc.,has a 2013 net § 1231 gain of $67,000 and had a $22,000 net § 1231 loss in 2012.For 2013,Vertical's net § 1231 gain is treated as:

Accepted Answer

A)  $45,000 long-term capital gain and $22,000 ordinary loss.
B)  $67,000 ordinary gain.
C)  $45,000 long-term capital gain and $22,000 ordinary gain.
D)  $67,000 capital gain.
E)  None of the above.F) B) and C)
G) A) and D)

Question 6

Rental use depreciable machinery held more than 12 months is an example of a § 1231 asset.

Accepted Answer

A) True 
 B)False

Question 7

To compute the holding period,start counting on the day after the property was acquired and include the day of disposition.

Accepted Answer

A) True 
 B)False

Question 8

If there is a net § 1231 loss,it is treated as an ordinary loss.

Accepted Answer

A) True 
 B)False

Question 9

Copper Corporation sold machinery for $47,000 on December 31,2013.The machinery had been purchased on January 2,2010,for $60,000 and had an adjusted basis of $41,000 at the date of the sale.For 2013,what should Copper Corporation report?

Accepted Answer

A)  Ordinary income of $6,000.
B)  A § 1231 gain of $3,000 and $3,000 of ordinary income.
C)  A § 1231 gain of $6,000.
D)  A § 1231 gain of $6,000 and $3,000 of ordinary income.
E)  None of the above.F) B) and D)
G) B) and E)

Question 10

A worthless security had a holding period of 6 months when it became worthless on December 10,2013.The investor who had owned the security had a basis of $20,000 for it.Which of the following statements is correct?

Accepted Answer

A)  The investor has a long-term capital loss of $20,000.
B)  The investor has a short-term capital loss of $20,000.
C)  The investor has a nondeductible loss of $20,000.
D)  The investor has a short-term capital gain of $20,000.
E)  None of the above.F) A) and C)
G) B) and D)

Question 11

The maximum amount of the unrecaptured § 1250 gain (25% gain)is the depreciation taken on real property sold at a recognized gain.

Accepted Answer

A) True 
 B)False

Question 12

Tan,Inc.,sold a forklift on April 12,2013,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:

Accepted Answer

A)  Includes Tan's holding period for the forklift.
B)  Begins on April 12,2013.
C)  Begins on April 13,2013.
D)  Does not begin until Ashley sells the forklift.
E)  None of the above.F) A) and B)
G) D) and E)

Question 13

Violet,Inc.,has a 2013 $80,000 long-term capital gain included in its $285,000 taxable income.Which of the following is correct?

Accepted Answer

A)  Violet will benefit from an alternative tax on net capital gains computation.
B)  Violet's regular tax on taxable income will be the same as its tax using an alternative tax on net capital gains approach.
C)  Violet's $80,000 net capital gain is not taxable.
D)  Violet's regular tax on taxable income will be greater than its tax using an alternative tax on net capital gain approach.
E)  None of the above.F) B) and D)
G) A) and B)

Question 14

Virgil was leasing an apartment from Marple,Inc.Marple paid Virgil $1,000 to cancel his lease and move out so that Marple could demolish the building.As a result:

Accepted Answer

A)  Virgil has a $1,000 capital gain.
B)  Virgil has a $1,000 capital loss.
C)  Marple has a $1,000 capital loss.
D)  Marple has a $1,000 capital gain.
E)  None of the above.F) D) and E)
G) B) and C)

Question 15

The Code contains two major depreciation recapture provisions-§§ 1245 and 1250.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following would be included in the netting of § 1231 gains and losses?

Accepted Answer

A)  Personal use property net casualty gain.
B)  Section 1231 loss.
C)  Section 1231 gain.
D)  All of the above.
E)  b.and c.F) B) and E)
G) A) and B)

Question 17

Involuntary conversion gains may be deferred if the proceeds of the involuntary conversion are reinvested.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Which of the following real property could be subject to § 1250 depreciation recapture?

Accepted Answer

A)  Property placed in service after 1986 on which straight-line depreciation was taken.
B)  A building on which § 168(k) depreciation was taken.
C)  Equipment on which accelerated depreciation was taken.
D)  Land which was not depreciated.
E)  a.and b.F) B) and D)
G) B) and E)

Question 20

Tom has owned 40 shares of Orange Corporation stock for five years.He sells the stock short for a total of $1,100.One month later,he closes the short sale by purchasing and delivering 40 shares of Orange Corporation stock for a total of $600.Tom has a $500 short-term capital gain.

Accepted Answer

A) True 
 B)False

Exam 8: Property Transactions: Capital Gains and Losses, section 1231, and Recapture Provisions

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

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Involuntary conversion gains may be deferred if the proceeds of the involuntary conversion are reinvested.

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Vertical,Inc.,has a 2013 net § 1231 gain of $67,000 and had a $22,000 net § 1231 loss in 2012.For 2013,Vertical's net § 1231 gain is treated as:

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The maximum § 1245 depreciation recapture generally equals the accumulated depreciation.

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The maximum amount of the unrecaptured § 1250 gain (25% gain)is the depreciation taken on real property sold at a recognized gain.

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Copper Corporation sold machinery for $47,000 on December 31,2013.The machinery had been purchased on January 2,2010,for $60,000 and had an adjusted basis of $41,000 at the date of the sale.For 2013,what should Copper Corporation report?

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If there is a net § 1231 loss,it is treated as an ordinary loss.

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To compute the holding period,start counting on the day after the property was acquired and include the day of disposition.

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Tan,Inc.,sold a forklift on April 12,2013,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:

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A worthless security had a holding period of 6 months when it became worthless on December 10,2013.The investor who had owned the security had a basis of $20,000 for it.Which of the following statements is correct?

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Virgil was leasing an apartment from Marple,Inc.Marple paid Virgil $1,000 to cancel his lease and move out so that Marple could demolish the building.As a result:

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Which of the following would be included in the netting of § 1231 gains and losses?

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Which of the following real property could be subject to § 1250 depreciation recapture?

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Short-term capital losses are netted against long-term capital gains and long-term capital losses are netted against short-term capital gains.

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Rental use depreciable machinery held more than 12 months is an example of a § 1231 asset.

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Tom has owned 40 shares of Orange Corporation stock for five years.He sells the stock short for a total of $1,100.One month later,he closes the short sale by purchasing and delivering 40 shares of Orange Corporation stock for a total of $600.Tom has a $500 short-term capital gain.

Correct AnswerverifiedShow Answer

The Code contains two major depreciation recapture provisions-§§ 1245 and 1250.

Correct AnswerverifiedShow Answer

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

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Violet,Inc.,has a 2013 $80,000 long-term capital gain included in its $285,000 taxable income.Which of the following is correct?

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