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

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Question 21

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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 $22,000.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.)

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The taxpayer has adjusted gross income o...

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Question 22

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Hiram is a computer engineer and, while unemployed, invents a switching device for computer networks.He patents the device, but does not reduce it to practice.Hiram has a zero tax basis for the patent.In consideration of $800,000 plus a $1 royalty per device sold, Hiram assigns the patent to a computer manufacturing company.Hiram assigned all substantial rights in the patent.Which of the following is correct?

A) Hiram automatically has long-term capital gain from the lump sum payment, but not from the royalty payments.
B) Hiram automatically has long-term capital gain from the royalty payments, but not from the lump sum payment.
C) Hiram automatically has long-term capital gain from both the lump sum payment and the royalty payments.
D) Hiram does not have automatic long-term capital gain from either the lump sum payment or the royalty payments.
E) None of the above.

F) B) and E)
G) A) and B)

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Question 23

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The only things that the grantee of an option may do with the option are exercise it or let it expire.

In 2012 Angela, a single taxpayer with no dependents, disposed of for $44,000 a business building which cost $100,000. $60,000 of depreciation had been taken on the building.Angela has a short-term capital loss of $3,000 this year.She has taxable income (not related to property transactions) of $125,000. She has no § 1231 lookback loss. What is the amount and nature of the gain or loss, what is Angela's taxable income, and what is her tax on the taxable income?

A lease cancellation payment received by a lessee is generally treated as an exchange because the lease extinguished is usually a capital asset.

Section 1231 property generally does not include musical compositions.

White Company acquires a new machine for $35,000 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 $5,000 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?

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?

Section 1245 may apply to depreciable farm equipment.

Property sold to a related party purchaser that is depreciable by the purchaser may cause the seller to have ordinary gain.

In 2011, Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction.In 2012, Jenny has a $18,000 0%/15% long-term capital gain and no other capital gain or loss transactions.Which of the statements below is correct?

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

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

Blue Company sold machinery for $45,000 on December 23, 2012.The machinery had been acquired on April 1, 2010, for $49,000 and its adjusted basis was $14,200.The § 1231 gain, § 1245 recapture gain, and § 1231 loss from this transaction are:

A business machine purchased April 10, 2011, for $62,000 was fully depreciated in 2011 using § 179 immediate expensing. On August 15, 2012, the sole proprietor who owned the machine gave it to his son. On that date, the machine's fair market value was $57,000. The son did not use the machine in business or hold it as inventory and the machine was sold on November 22, 2012, for $53,000.What is the amount and nature of the gain or loss from disposition of the machine? Where is it reported in the son's tax return?

The tax law requires that capital gains and losses be separated from other types of gains and losses because there are limitations on the deduction of net capital losses.

On June 1, 2012, Brady purchased an option to buy 1,000 shares of General, Inc.at $40 per share.He purchased the option for $3,000.It was to remain in effect for five months.The market experienced a decline during the latter part of the year, so Brady decided to let the option lapse as of December 1, 2012.On his 2012 tax return, what should Brady report?

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:

On June 10, 2012, Ebon, Inc.acquired an office building as a result of a like-kind exchange.Ebon had given up a factory building that it had owned for 26 months as part of the like-kind exchange.Which of the statements below is correct?

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