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Exam 8: Property Dispositions

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Question 21

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____ 18. A taxpayer's initial investment in Section 1202 stock is limited to $1 million.

A) True
B) False

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Question 22

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Carol used her auto 60 percent for business and 40 percent for personal use. She purchased it for $10,800 and has taken $3,992 of depreciation on it. What is her recognized gain on a sale for $7,800 and what is it character?

A) $6,808 Section 1231 gain
B) $3,808 Section 1245 recapture
C) $2,192 Section 1245 recapture
D) $992 Section 1231 gain

E) A) and D)
F) A) and C)

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Question 23

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Ian and Mia married in early 2017 and purchased a new home together. Each owned and lived in separate residences prior to the marriage. Ian purchased his residence 5 years ago for $190,000 and he added a master bedroom and bathroom addition at a cost of $40,000. Mia purchased her home three years ago for $135,000. In late 2017, Ian sold his residence for $510,000 and paid a sales commission of $8,000. After paying off his $80,000 mortgage balance, he received the remaining cash proceeds of $422,000. In late 2017 Mia sold her residence for $190,000 and paid a sales commission of $2,000. She had paid off her mortgage so she received $188,000 cash from the sale. If Ian and Mia file a joint tax return for 2017, how much gain do they recognize on their 2017 joint tax return from the sales of their previous homes?

Lopez Corporation sold equipment that it had purchased for $300,000 ($100,000 cash and a note for $200,000) four years ago. As of the date of sale, Lopez had claimed $187,500 in accumulated depreciation on this equipment and had made $50,000 in principal payments on the note. Lopez received $80,000 cash and a note for $100,000 in addition to the purchaser assuming Lopez's $150,000 note on the equipment. How much of Lopez Corporation's realized gain on the sale will be a net Section 1231 gain?

Abby has a $10,000 loss on some collectibles, a $5,000 Sec. 1202 gain, and an $11,000 gain on some securities. If all gains and losses are long-term and Abby is in the 25 percent tax bracket, how is her net gain taxed?

_____ 7. A personal residence owned by an individual is a capital asset.

Grill Corporation sold all of its business assets when it went out of business. Which of the following is a capital asset?

_____ 3. The holding period for a long-term capital asset must exceed one year for tax-favored treatment.

What are the carryover provisions for unused capital losses applicable to corporations?

_____ 4. The holding period for an asset acquired by inheritance is determined by including the period the asset was held by the decedent.

George and Sally sold their primary residence in New Jersey on January 1, 2015 after having lived in the home for 20 years. (They used their $500,000 exclusion to avoid recognizing their $289,000 gain on the sale.) They decided to become permanent Florida residents and moved into the condominium they had purchased on January 2, 2013 at a foreclosure auction. Unfortunately, Sally missed all of her friends and family in New Jersey and in the latter part of 2017, they put the condominium up for sale and they sold it on January 2, 2018. They had purchased the condominium for only $65,000 and after putting in improvements at a cost of $21,000, they were able to sell it for $525,000. What is their realized and recognized gain on the sale of the condominium?

In what order are capital gains subject to the 15%/20%, 25%, and 28% capital gains tax rates included in taxable income in the determination of the tax liability?

Edna had $20,000 of ordinary income. In addition, she had a $1,500 short-term capital gain on one stock and a $4,900 long-term capital loss on another. What is her adjusted gross income?

Which of the following comparisons is correct?

_____ 2. A gain must be recognized unless some tax provision allows nonrecognition or deferral.

What is the difference between a realized gain or loss and a recognized gain or loss?

_____ 14. Section 1245 recapture is primarily applicable to realty.

_____ 1. The tax effect of a sale of an asset at a gain increases the cash flow from the sale.

Janeway Corporation has ordinary taxable income of $127,000 in 2017 before consideration of any of the following property transactions. It sold two blocks of stocks held for investment: one yielded a short-term capital gain of $8,000 and the other a long-term capital loss of $14,000. In addition, it sold four pieces of machinery used for three years for $30,000. The machines had cost $50,000 originally and had $35,000 of depreciation deductions taken. They also sold a building for $400,000 that they had purchased in 2000 for $390,000. The depreciation deductions up to the date of sale were $89,000. Determine the amount and type of the net gains and losses from the property transactions and Janeway Corporation's taxable income for 2017.

_____ 19. A taxpayer who disposed of his or her home in 2016 in a short sale had to recognize up to $1 million in cancellation of indebtedness income.