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

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Question 61

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A lessor is paid $45,000 by its commercial tenant as a lease cancellation fee.The tenant wanted to get out of its lease so it could move to a different building.The lessor had held the lease for three years before it was canceled.The lessor had a zero tax basis for the lease.The lessor has received:

A) Ordinary income of $45,000.
B) Long-term capital gain of $45,000.
C) Short-term capital gain of $45,000.
D) Neither gain nor loss.
E) None of these.

F) B) and D)
G) C) and D)

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Question 62

Multiple Choice

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Ryan has the following capital gains and losses for 2019: $6,000 STCL, $5,000 28% gain, $2,000 25% gain, and $6,000 0%/15%/20% gain.Which of the following is correct:

A) The net capital gain is composed of $1,000 25% gain and $6,000 0%/15%/20% gain.
B) The net capital gain is composed of $5,000 28% gain and $2,000 0%/15%/20% gain.
C) The net capital gain is composed of $3,000 28% gain, $2,000 25% gain, and $2,000 0%/15%/20% gain.
D) The net capital gain is composed of $1,000 28% gain and $6,000 0%/15%/20% gain.
E) None of these.

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

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Question 63

True/False

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The subdivision of real property into lots for resale when no substantial physical improvements have been made to the property never causes the gain from sale of the lots to be treated as ordinary income.

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

Virgil was leasing an apartment from Marple, Inc.Marple paid Virgil $1,000 to cancel his lease and move out so that Marple could demolish the building.As a result:

Larry was the holder of a patent on a video game.During 2019, he sold all substantial rights in the patent for $365,000 in cash and a 3% royalty on the purchaser's first $10,200,000 of sales each year related to the product in which the patent is incorporated.Larry had not reduced the patent to practice.He had a $86,000 basis for the patent.During 2019, he received $30,000 in royalties.What is the nature and amount of Larry's gain?

Section 1231 property generally does not include accounts receivables arising in the ordinary course of business.

In 2019, Mark has $18,000 short-term capital loss, $7,000 28% gain, and $6,000 0%/15%/20% gain.Which of the following statements is correct?

The tax status of an asset refers to whether the asset is a capital asset, a § 1231 asset, or an ordinary asset.

A corporation has a $50,000 short-term capital loss for the year.The corporation has $1,200,000 of taxable income from other sources.The taxable income for the year is $1,200,000.

Rental use depreciable machinery held more than 12 months is an example of a § 1231 asset.

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

Section 1239 (relating to the sale of certain property between related taxpayers) does not apply unless the property:

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.

Emilio owns vacant land he is holding for investment.Two years ago he granted an option to purchase the land.The option grantee paid $25,000 for the option.This year the option expired unexercised.As a result, Emilio has:

The following chart details Sheen's 2017, 2018, and 2019 stock transactions.What is the capital loss carryover to 2019 and what is the net capital gain or loss for 2019?

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

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?

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