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Exam 17: Property Transactions: Section 1231 and Recapture Provisions

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Question 31

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An individual taxpayer has the following gains and losses.There is $3,000 of § 1231 lookback losses.What is the net long-term capital gain? $\begin{array} { l l r } \text { Holding Period/Propertv } & \begin{array} { l } \text { Character of Gain or } \\\text { Loss }\end{array} & \text { Amount } \\\text { 5 years/vacant land } & \text { §1231 gain } & \$ 7,000 \\\text { 2 years/business equipment } & \text { §1245 gain } & 3,200 \\\text { 3 years/publicly traded stock } & \text { Long-term capital gain } & 890 \\\text { 8 months/publicly traded stock } & \text { Short-term capital loss } & ( 1,870 )\end{array}$

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The taxpayer has a net long-term capital...

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Question 32

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Charmine, a single taxpayer with no dependents, has already incurred a $10,000 § 1231 gain in 2019 and has no § 1231 lookback losses.She purchased a business machine for $100,000 five years ago; $70,000 of depreciation has been taken on it, and the machine is now worth $90,000.How will the net § 1231 gain or loss be affected if Charmine trades in the business machine for a like-kind business machine and pays an additional $12,000 in cash to obtain the replacement machine? If Charmine already has $352,000 of taxable income, which does not include a $10,000 § 1231 gain or any capital gains or losses, what is her taxable income?

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The current-year § 1231 gain will be aff...

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Question 33

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Assume that a building is subject to § 1250 depreciation recapture because bonus depreciation [§ 168(k) ] was used. The building is destroyed in a hurricane, which 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?

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

Describe the circumstances in which the maximum unrecaptured § 1250 gain (25% gain) does not become part of the Schedule D netting process for an individual taxpayer?

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

Section 1245 depreciation recapture potential does not carry over from a deceased taxpayer to the beneficiary taxpayer.

Which of the following statements is correct?

Depreciable personal property was sold at a gain in 2018.On what 2018 form would this transaction be reported, where initially in that form, and what will the form most likely do with the gain?

Why is it generally better to have a net § 1231 gain year followed by a net § 1231 loss year rather than a net § 1231 loss year followed by a net § 1231 gain year?

Casualty gains and losses from nonpersonal use assets are not netted against casualty gains and losses from personal use assets.

Red Company had an involuntary conversion on December 23, 2019.The machinery had been acquired on April 1, 2017, 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:

Residential real estate was purchased in 2016 for $345,000, held as rental property, and depreciated straight-line. Assume that 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, 2019, for $683,000 total.What are the tax status of the property and the nature of the gain from the disposition, and is any of it § 1250 depreciation recapture gain or unrecaptured § 1250 gain?

An individual business taxpayer owns land on which he grows trees for logging.The land has been held more than 10 years and the trees growing on the land were planted eight years ago.Normally, the timber would be inventory for this taxpayer, but the tax law allows the taxpayer to elect to treat cutting the timber as the disposition of a § 1231 asset.

Section 1231 property generally includes certain purchased intangible assets (such as patents and goodwill) that are eligible for amortization and held for more than one year.

Once § 1231 gains are netted against § 1231 losses, if the gains exceed the losses, the net gain is offset by the lookback nonrecaptured § 1231 losses.

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 following table after all possible netting and reclassification have been completed? What is the taxpayer's adjusted gross income? (Ignore the self- employment tax deduction.) $\begin{array} { l c c c c } \text { Asset } & \text { Purchase Date } & \text { Sale Date } & \text { Depreciation } & \text { Gain (Loss) } \\\text { Machine 1 } & 10 / 10 / 17 & 11 / 11 / 19 & \$ 323,000 & \$ 66,000 \\\text { Machine 2 } & 10 / 02 / 16 & 11 / 11 / 19 & 65,000 & ( 15,000 ) \\\text { Machine 3 } & 09 / 23 / 15 & 11 / 11 / 19 & 183,000 & 23,000 \\\text { Machine 4 } & 09 / 23 / 15 & 11 / 11 / 19 & 28,000 & 34,000\end{array}$

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

A business machine purchased April 10, 2017, for $98,000 was fully depreciated in 2017 using § 179 immediate expensing.On August 15, 2019, the machine was sold for $67,000.What is the amount and nature of the gain or loss from disposition of the machine?

Part III of Form 4797 is used to report gains from the sale of depreciable business equipment sold at a gain and held more than one year.