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Exam 11: Property Dispositions

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Question 41

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

A) True
B) False

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Question 42

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Which of the following is true regarding the §1231 look-back rule?

A) It only applies when a §1231 gain occurs and there is a nonrecaptured §1231 loss in the prior five years.
B) It only applies when a §1231 loss occurs.
C) It only applies when a §1231 gain occurs and there is a nonrecaptured §1231 gain in the prior five years.
D) It only applies when a §1231 gain occurs.
E) None of the choices are correct.

F) None of the above
G) C) and D)

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Question 43

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Ashburn reported a $105,000 net §1231 gain in year 6. Assuming Ashburn reported$60,000 of nonrecaptured §1231 losses during years 1-5, what amount of Ashburn's net§1231 gain for year 6, if any, is treated as ordinary income?

The gain or loss realized on the sale of an asset is always recognized for tax purposes.

How long after the initial exchange does a taxpayer have to identify replacement property in a like-kind exchange?

Kristi had a business building destroyed in an earthquake. The old building was purchased for$250,000 and $80,000 of depreciation deductions had been taken. Her insurance proceeds were$550,000. Although the replacement property was much larger and nicer than her old building, Kristi's new property qualified as replacement property. She acquired the new property 13 months after the earthquake for $620,000. What is the amount of Kristi's realized gain and recognized gain and the basis in her new property?

Reid had a business building destroyed in a fire. The old building was purchased for $375,000 and$60,000 of depreciation deductions had been taken. Although the old building had a fair market value of $425,000 at the time of the fire, his insurance proceeds were limited to $400,000. Reidfound qualified replacement property which he acquired six months later for $390,000. What is theamount of Reid's realized gain and recognized gain?

The §1231 look-back rule applies whether there is a net gain or loss.

Alpha sold machinery, which it used in its business, to Beta, a related entity, for $40,000.Beta used the machinery in its business. Alpha bought the machinery a few years ago for$50,000 and has claimed $30,000 of depreciation expense. What is the amount and character of Alpha's gain?

Assets held for investment and personal use assets are examples of capital assets.

Redoubt LLC traded machinery used in its business to a machinery dealer for some new machinery.Redoubt originally purchased the machinery for $80,000 and it had an adjusted basis of $53,000 at the time of the exchange. The new machinery had a fair market value of $62,000. Redoubt alsoreceived $7,000 of computer equipment in the transaction. What is Redoubt's gain or lossrecognized on the exchange?

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

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

Depreciation recapture changes both the amount and character of a gain.

Andrea sold a piece of machinery she used in her business for 9 months. The amount realized was$50,000 and the adjusted basis was $55,000. What is Andrea's gain or loss realized and what is the character of the gain or loss?

In the current year, Raven sold machinery with a fair market value of $200,000. The machinery's original basis was $190,000 and Raven's accumulated depreciation on the machinery was $40,000, so its adjusted basis to Raven was $150,000. Raven received $50,000 in the current year and a note paying Raven $75,000 a year for two years beginning in next year. What is the amount and character of the gain that Raven will recognize in the current year?

Arlington LLC traded machinery used in its business to a machinery dealer for some new machinery. Arlington originally purchased the machinery for $60,000 and it had anadjusted basis of $28,000 at the time of the exchange. The new machinery had a fair market value of $35,000. Arlington also received $2,000 of office equipment in the transaction. What is Arlington's gain or loss recognized on the exchange?

Bateman Corporation sold an office building that it used in its business for $800,000.Bateman bought the building ten years ago for $600,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Bateman's gain or loss?

Each of the following is true except for:

Which of the following is not true regarding an asset's adjusted basis?