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

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Question 41

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

A) True
B) False

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Question 42

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Stanley operates a restaurant as a sole proprietorship.Which of the following items are capital assets in the hands of Stanley?

A) The restaurant's tables and chairs.
B) A portable sound system used to play "theme music" for the restaurant.
C) The restaurant building that is an asset of the sole proprietorship.
D) An interest-bearing savings account used to keep the restaurant's excess cash.
E) None of the above.

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

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Question 43

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A business machine purchased April 10,2011,for $98,000 was fully depreciated in 2011 using § 179 immediate expensing.On August 15,2013,the machine was sold for $67,000.What is the amount and nature of the gain or loss from disposition of the machine?

Assume a building is subject to § 1250 depreciation recapture because § 168(k) was used to depreciate it.The building is destroyed in a hurricane and this is the taxpayer's only casualty or theft for the year.In which of the following situations could there be a § 1250 depreciation recapture gain?

If the holder of an option fails to exercise the option,the lapse of the option is considered a sale or exchange on the option expiration date.

The chart below details Sheen's 2011,2012,and 2013 stock transactions.What is the capital loss carryover to 2013 and what is the net capital gain or loss for 2013? $\begin{array}{lllll}&\text { Short-term } & \text { Shoit-term } & \text { Long-term } & \text { Long-term }\\\text { Tax Year } & \text { Capital Gains } & \text { Capital Losses } & \text { Capital Gains } & \text { Capital Losses } \\\hline 2011 & \$ 4,000 & \$ 6,000 & \$ 2,000 & \$ 13,000 \\2012 & \$ 16,000 & \$ 14,000 & \$ 23,000 & \$ 28,000 \\2013 & \$ 55,000 & \$ 52,000 & \$ 67,000 & \$ 33,000\end{array}$

Section 1231 property includes nonpersonal use property where casualty gains exceed casualty losses for the taxable year.

Residential real estate was purchased in 2010 for $345,000,held as rental property,and depreciated straight-line.Assume the land cost was $45,000 and the building cost was $300,000.Depreciation totaled $34,089.The building and land were sold on June 10,2013,for $683,000 total.What is the tax status of the property,the nature of the gain from the disposition,and is any of it § 1250 depreciation recapture gain or unrecaptured § 1250 gain?

White Company acquires a new machine for $75,000 and uses it in White's manufacturing operations.A few months after White places the machine in service,it discovers that the machine is not suitable for White's business.White had fully expensed the machine in the year of acquisition using § 179.White sells the machine for $60,000 in the tax year after it was acquired,but held the machine only for a total of 10 months.What was the tax status of the machine when it was disposed of and the amount of the gain or loss?

Personal use property casualty gains and losses are not subject to the § 1231 rules.

Ramon is in the business of buying and selling securities.Which of the following is a capital asset for Ramon?

Red Company had an involuntary conversion on December 23,2013.The machinery had been acquired on April 1,2011,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:

Seamus had $16,000 of net short-term capital loss in 2012.In 2013,Seamus has $17,000 of long-term capital loss and $26,000 of long-term capital gain.Which of the following statements is correct?

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?

Section 1250 depreciation recapture will apply when accelerated depreciation was used on property used outside the United States and the property is sold at a gain.

Blue Company sold machinery for $45,000 on December 23,2013.The machinery had been acquired on April 1,2011,for $69,000 and its adjusted basis was $34,200.The § 1231 gain,§ 1245 recapture gain,and § 1231 loss from this transaction are:

Since the Code section that defines "capital asset" says what is not a capital asset,other Code sections have to help determine what is and what is not a capital gain or loss.

Judith (now 37 years old)owns a collection of porcelain dolls that she acquired when she was a grade schooler.She had forgotten about them until her mother sent them to her.Her mother had discovered them in a box in her attic while she was cleaning out her house before selling it.Judith had originally acquired all the dolls as gifts from her parents,so she has no way to establish a basis for the dolls.Using information from the Internet,she prepares a careful inventory of the dolls that includes their name,when they were first available for sale,their current value,and other pertinent information.She then lists them for sale on the Internet.To her surprise,she quickly gets an offer of $5,000 for all of them and sells them.Judith has no other gain or loss transactions for the year and is in the 28% marginal tax bracket.What issues do these facts create?

If § 1231 asset casualty gains and losses net to a gain,the gain is treated as a § 1231 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?