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Exam 17: Property Transactions: Section 1231 and Recapture Provisions

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Question 1

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

A) True
B) False

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Question 2

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

A) True
B) False

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Question 3

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Williams owned an office building (but not the land) that was destroyed by a fire. The building was insured and he has a $156,000 gain because his insurance recovery exceeded his adjusted basis for the building. Williams may replace the building. He had taken $145,000 of depreciation on the building, has no § 1231 lookback loss, has no other § 1231 transactions for the year, and has no Schedule D transactions for the year. What is final nature of his gain for the year and what tax rate(s) apply to the gain if: a. He does reinvest the insurance proceeds. b. If he does not reinvest the insurance proceeds.

The following table describes the § 1231 assets sold by Tan Company (a sole proprietorship) this year.Compute the gain or loss from each asset disposition and determine the net § 1231 gain treated as long-term capital gain for the year.Assume that there is a § 1231 lookback loss of $14,000. $\begin{array} { l c c c c c } \text { Asset } & \text { Acquired } & \text { Sold } & \text { Cost } & \text { Depreciation } & \text { Sale Price } \\\text { Stamping machine } & 3 / 10 / 15 & 8 / 10 / 19 & \$ 40,000 & \$ 29,736 & \$ 2,000 \\\text { Factory building } & 2 / 12 / 12 & 7 / 23 / 19 & 80,000 & 18,838 & 90,000 \\\text { Tractor } & 5 / 16 / 14 & 11 / 13 / 19 & 52,000 & 52,000 & 60,000 \\\text { Overhead crane } & 11 / 12 / 08 & 2 / 25 / 19 & 74,000 & 74,000 & 18,000\end{array}$

A net § 1231 loss is treated as an ordinary loss.

Section 1231 property generally does not include artistic compositions.

Section 1231 gain that is treated as long-term capital gain carries from the 2018 Form 4797 to the 2018 Form 1040, Schedule D, line .

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

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

Describe the circumstances in which the potential § 1245 depreciation recapture is extinguished.

Vertigo, Inc., has a 2019 net § 1231 loss of $64,000 and had a $32,000 net § 1231 gain in 2018.For 2019, Vertigo's net § 1231 loss is treated as:

In 2019 Angela, a single taxpayer with no dependents, disposed of a business building for $44,000 that cost $100,000. Depreciation of $60,000 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 and 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?

During 2019, an individual had the following gains and losses on property held for the long-term holding period: sale of Orange common stock ($8,000 gain) ; sale of real property used in the taxpayer's business ($1,800 loss) ; destruction of real property used in the taxpayer's business by fire ($1,000 loss) .Which of the following statements is correct?

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

Blue Company sold machinery for $45,000 on December 23, 2019.The machinery had been acquired on April 1, 2017, for $69,000 and its adjusted basis was $34,200.The § 1231 gain, § 1245 recapture gain, and § 1231 loss from this transaction are:

Section 1231 applies to the sale or exchange of business properties but not to personal use activity casualties.

Spencer has an investment in two parcels of vacant land.Parcel 1 is a capital asset and parcel 2 is a § 1231 asset. Spencer already has a short-term capital loss for the year that he would like to offset with capital gain.He has a § 1231 lookback loss that exceeds the gain from the disposition of either land parcel.Spencer wants to sell only one land parcel: each of them would yield the same amount of gain.The gain that would be recognized exceeds the short-term capital loss Spencer already has.Which of the following statements is correct?

The following assets in Jack's business were sold in 2018: $\begin{array} { l l l } \text { Asset } & \underline { \text { Holding Period } } & \underline { \text { Gain/(Loss) } } \\\text { Office equipment } & 6 \text { years } & \$ 1,100 \\\text { Automobile } & 8 \text { months } & ( \$ 800 ) \\\text { ABC stock (capital asset) } & 2 \text { years } & \$ 1,400\end{array}$ Office equipment, purchased for $8,000, had a zero adjusted basis.The automobile was purchased for $2,000 and sold for $1,200.The ABC stock was purchased for $1,800 and sold for $3,200.In 2018 (the year of sale) , Jack should report what amount of net capital gain and net ordinary income?

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

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