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

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Question 1

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In 2016 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?

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The adjusted basis of the building is $4...

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Question 2

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Vertigo, Inc., has a 2016 net § 1231 loss of $64,000 and had a $32,000 net § 1231 gain in 2015. For 2016, Vertigo's net § 1231 loss is treated as:

A) Ordinary loss.
B) Ordinary gain.
C) Capital loss.
D) Capital gain.
E) None of the above.

F) C) and D)
G) All of the above

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Question 3

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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.

On June 1, 2016, 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, 2016. On his 2016 tax return, what should Brady report?

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:

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

Residential real estate was purchased in 2013 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, 2016, 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?

Ranja acquires $200,000 face value corporate bonds for $186,000 when the bonds are issued. He holds the bonds as an investment for two years and then sells them for $198,000. He amortizes $2,000 of the OID. What tax issues does Ranja have with respect to these bonds?

An individual taxpayer with 2016 net short-term capital loss of $5,000 generally can deduct up to $3,000 for AGI and carry the balance forward to 2017.

A business taxpayer sells depreciable business property with an adjusted basis of $40,000 for $32,000. The taxpayer held the property for more than a year. The taxpayer has an $8,000 capital loss.

Vanna owned an office building that had been held more than one year when it was sold for $567,000. The real estate had an adjusted basis of $45,000 for the land and $233,000 for the building. Straight-line depreciation of $162,000 had been taken on the building. What is the amount and initial character of the gain or loss from disposition of the real estate? Is any of the gain unrecaptured § 1250 (25%) gain?

Which of the following events could result in § 1250 depreciation recapture?

The chart below details Sheen's 2014, 2015, and 2016 stock transactions. What is the capital loss carryover to 2016 and what is the net capital gain or loss for 2016?

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?

When an individual taxpayer has a net long-term capital gain that includes both 28% gain and 0%/15%/20% gain, which of these gains will be taxed first when the alternative tax on net long-term capital gain method is used and what difference does it make?

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.

In 2016, an individual taxpayer has $863,000 of taxable income that includes $48,000 of 0%/15%/20% long-term capital gain. Which of the following statements is correct?

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?

Sara is filing as head of household and has 2016 taxable income of $57,000 which includes $3,000 of net long-tem capital gain. The net long-term capital gain is made up of $1,000 25% gain and $2,000 0%/15%/20% gain. What is the tax on her taxable income using the alternative tax method? Note: Use the tax rate schedule rather than the tax table.

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.)