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Exam 11: Property Dispositions

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Question 51

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Sumner sold equipment that it uses in its business for $30,200. Sumner bought the equipment a few years ago for $79,900 and has claimed $39,950 of depreciation expense. Assuming that this is Sumner's only disposition during the year, what is the amount and character of Sumner's gain or loss?

A) $9,750 §1231 loss.
B) $9,750 §1245 loss.
C) $49,700 ordinary loss.
D) $9,750 capital loss.
E) None of the choices are correct.

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

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Question 52

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Leesburg sold a machine for $2,200 on November 10 ^th of the current year. The machine was purchased for $2,600. Leesburg had taken $1,200 of depreciation deductions on the machine through the date of the sale. What is Leesburg's gain or loss realized on the machine?

A) $800 gain.
B) $1,000 gain.
C) $1,200 loss.
D) $1,400 loss.
E) None of the choices are correct.

F) A) and B)
G) B) and D)

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Question 53

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Butte sold a machine to a machine dealer for $51,700. Butte bought the machine for $53,300 several years ago and has claimed $11,650 of depreciation expense on the machine. What is the amount and character of Butte's gain or loss?

Koch traded Machine 1 for Machine 2 when the fair market value of both machines was $49,350. Koch originally purchased Machine 1 for $76,300, and Machine 1's adjusted basis was $40,650 at the time of the exchange. Machine 2's seller purchased it for $64,350 and Machine 2's adjusted basis was $55,650 at the time of the exchange. What is Koch's adjusted basis in machine 2 after the exchange?

Which of the following is not an involuntary conversion?

What is the character of land used in an active trade or business for two years?

Kristi had a business building destroyed in an earthquake. The old building was purchased for $250,000, and $80,000 of depreciation deductions had been taken. Her insurance proceeds were $550,000. Although the replacement property was much larger and nicer than her old building, Kristi's new property qualified as replacement property. She acquired the new property 13 months after the earthquake for $620,000. What is the amount of Kristi's realized gain and recognized gain and the basis in her new property?

Bozeman sold equipment that it uses in its business for $80,000. Bozeman bought the equipment two years ago for $75,000 and has claimed $20,000 of depreciation expense. What is the amount and character of Bozeman's gain or loss?

Andrea sold a piece of machinery she used in her business for nine months. The amount realized was $50,000 and the adjusted basis was $55,000. What is Andrea's gain or loss realized, and what is the character of the gain or loss?

Silver sold machinerythat it used in its business to Gold, a related entity, for $55,000. Silver bought the equipment a few years ago for $50,000 and has claimed $15,000 of depreciation expense. What is the amount and character of Silver's gain?

Brandon, an individual, began business four years ago and has sold §1231 assets with $5,000 of losses within the last five years. Brandon owned each of the assets for several years. In the current year, Brandon sold the following business assets: Assuming Brandon's marginal ordinary income tax rate is 32 percent, what effect do the gains and losses have on Brandon's tax liability? Use dividends and capital gains tax rates for reference.

Collins Corporation, of Camden, Maine, wants to exchange its manufacturing facility for Rockland Company's building. Both parties agree that Collins's facility is worth $200,000 and that Rockland's building is worth $175,000. Collins will not enter into the transaction unless it qualifies as a like-kind exchange. If Collins wants to avoid gain, what could the parties do to equalize the value exchanged but still allow the exchange to qualify as a like-kind exchange?

A loss realized for property destroyed in a hurricane is deferred under the involuntary conversion rules.

Unrecaptured §1250 gain is taxed at a maximum rate of 25 percent.

Andrea sold a piece of machinery she used in her business for eleven months. The amount realized was $50,170 and the adjusted basis was $55,850. What is Andrea's gain or loss realized, and what is the character of the gain or loss?

A parcel of land is always a capital asset.

Arlington LLC exchanged land used in its business for some new land. Arlington originally purchased the land it exchanged for $34,500. The new land had a fair market value of $38,250. Arlington also received $8,500 of office equipment in the transaction. What is Arlington'srecognized gain or loss on the exchange?

Redoubt LLC exchanged an office building used in its business for a rental house. Redoubt originally purchased the building for $80,040, and it had an adjusted basis of $52,960 at the time of the exchange. The rental house had a fair market value of $62,040. Redoubt also received $7,020 of cash in the transaction. What is Redoubt's gain or loss recognized on the exchange? What is Redoubt's basis in the rental house?

Which of the following is true regarding disallowed losses between related taxpayers?

For corporations, §291 recaptures 20 percent of the lesser of depreciation taken or the realized gain as ordinary income.