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Exam 10: Property Dispositions

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Question 1

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Alexandra sold equipment that she uses in her business for $100,000. Alexandra bought the equipment two years ago for $90,000 and has claimed $25,000 of depreciation expense. What is the amount and character of Alexandra's gain or loss?

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$25,000 or...

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Question 2

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Andrew, an individual, began business four years ago and has never sold a §1231 asset. Andrew owned each of the assets for several years. In the current year, Andrew sold the following business assets: $\begin{array} { | l | r | r | r | } \hline { \text { Asset } } & \text { Original Cost } & \begin{array} { c } \text { Accumulated } \\\text { Depreciation }\end{array} & \text { Gain/Loss } \\\hline \text { Machinery } & \$ 12,000 & \$ 7,000 & \$ 6,000 \\\hline \text { Furniture } & 10,000 & 2,000 & 3,000 \\\hline \text { Building } & 90,000 & 20,000 & ( 5,000 ) \\\hline\end{array}$ Assuming Andrew's marginal ordinary income tax rate is 30 percent, what is the character of the gains and losses and what affect do they have on Andrew's tax liability?

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$4,000 ordinary inco...

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Question 3

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Accounts receivable and inventory are examples of ordinary assets.

The sale of computer equipment used in a trade or business for 9 months results in the following type of gain or loss?

Pelosi Corporation sold a parcel of land valued at $300,000. Its basis in the land was $250,000. For the land, Pelosi received $150,000 in cash in the current year and a note providing Pelosi with $150,000 in the subsequent year. What is Pelosi's recognized gain in the current and subsequent year, respectively?

Tyson had a parcel of undeveloped investment land that he wanted to trade for a warehouse to be used in his business. He found a buyer willing to pay him $450,000 for the land. He transferred the land to a third party intermediary on April 1st of the current year. On May 10th, with the help of a commercial real estate agent, Tyson identified two suitable warehouses. On August 10th he made an offer on the first building which was rejected. On August 13th an offer was accepted on the second warehouse. On September 23rd the third party intermediary transferred $500,000 ($450,000 from the original property plus $50,000 from Tyson) to the seller and conveyed title to the warehouse to Tyson. Explain whether the exchange of property qualifies as a like-kind exchange.

Luke sold land valued at $210,000. His original basis in the land was $180,000. For the land, Luke received $60,000 in cash in the current year and a note providing $150,000 in the subsequent year. What is Luke's recognized gain in the current and subsequent year, respectively?

Bull Run sold a computer for $1,200 on November 10th of the current year. The computer was purchased for $2,800. Bull Run had taken $1,000 of depreciation deductions. What is Bull Run's gain or loss realized on the computer?

Realized gains are recognized unless there is specific exception.

Which of the following transactions results solely in §1245 gain?

The §1231 look-back rule recharacterizes §1231 gains if §1231 losses have created ordinary losses in the last 5 years.

Arlington LLC traded machinery used in its business to a machinery dealer for some new machinery. Arlington originally purchased the machinery for $60,000 and it had an adjusted basis of $28,000 at the time of the exchange. The new machinery had a fair market value of $35,000. Arlington also received $2,000 of office equipment in the transaction. What is Arlington's gain or loss recognized on the exchange?

After application of the look-back rule, net §1231 gains become capital while net §1231 losses become ordinary.

Collins Corporation, of Camden, Maine, wants to exchange its manufacturing equipment for Rockland Company's equipment. Both parties agree that Collins's machinery is worth $200,000 and that Rockland's machinery 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?

For an installment sale, the gross profit percentage is the gain recognized divided by the gain realized.

Which of the following is true regarding the §1231 look-back rule?

§1250 recaptures the excess of accelerated depreciation over straight line depreciation on real property placed in service between 1981 and 1986 as ordinary income.

Misha traded computer equipment used in her business to a computer dealer for some new computer equipment. Misha originally purchased the computer equipment for $15,000 and it had an adjusted basis of $11,000 at the time of the exchange. Misha also received a used copier worth $2,000 in the transaction. What is Misha's adjusted basis in the new equipment after the exchange?

Residential real property is not like-kind with non-residential real property.

Which of the following does not ultimately result in a capital gain or loss?