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Exam 14: Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions

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Question 1

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For § 1245 recapture to apply, accelerated depreciation must have been taken on the property.

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Question 2

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Involuntary conversion gains may be deferred if the proceeds of the involuntary conversion are reinvested.

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A security that was purchased by an individual and qualifies as § 1244 stock becomes worthless. The taxpayer is single and the loss is $30,000. The loss is treated as an ordinary loss.

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.

An individual taxpayer has a $2,500 short-term capital loss for the year. The taxpayer, who has significant taxable income from other sources, could sell stock and generate a $2,500 long-term capital gain. Explain the impact on the taxpayer's taxable income if he did or did not sell the stock.

Hilda lent $2,000 to a close personal friend to help the friend avoid overdrawing the friend's checking account. The friend was supposed to repay the $2,000 within a month. Instead, the friend declared personal bankruptcy and Hilda will never recover any of the $2,000. What are the tax implications of these events for Hilda?

Which of the following comparisons is correct?

The § 1245 depreciation recapture potential does not reduce the amount of the charitable contribution deduction under § 170.

Robin Corporation has ordinary income from operations of $30,000, net long-term capital gain of $10,000, and net short-term capital loss of $15,000. What is the taxable income for 2019?

Willie is the owner of vacant land that he purchased in 2015 for $1,400,000 and held for investment. On January 22, 2018, he was paid $145,000 for a 13-month option on the land by Susan. She could buy the land for an additional $1,200,000 by exercising the option. Susan had hoped to build a luxury home on the land but was unable to get approval to build a big enough home to satisfy her needs. Consequently, Susan did not exercise her option, which expired on February 22, 2019. (1) What is Willie's basis, gain or loss, and type of gain or loss from these events? (2) What is Susan's basis, gain or loss, and type of gain or loss from these events?

An individual taxpayer has the following gains and losses. There is $3,000 of § 1231 lookback losses. What is the net long-term capital gain? $\begin{array}{llr}\text { Holding Period/Property } & \begin{array}{l}\text { Character of Gain or } \\\text { Loss }\end{array} & \text { Amount } \\\text { 5 years/vacant land } & \S 1231 \text { gain } & \$ 7,000 \\\text { 2 years/business equipment } & \S 1245 \text { gain } & 3,200 \\\text { 3 years/publicly traded stock } & \text { Long-term capital gain } & 890 \\\text { 8 months/publicly traded stock } & \text { Short-term capital loss } & (1,870)\end{array}$

All short-term gain from collectibles is subject to a potential alternative tax rate of 28%.

Depreciable personal property was sold at a gain in 2018. On what 2018 form would this transaction be reported, where initially in that form, and what will the form most likely do with the gain?

In 2019, Satesh has $5,000 short-term capital loss, $13,000 0%/15%/20% long-term capital gain, and $7,000 qualified dividend income. Satesh is single and has other taxable income of $15,000. Which of the following statements is correct?

Short-term capital gain is eligible for a special tax rate only when it exceeds long-term capital gain.

Stella purchased vacant land in 2012 that she subdivided for resale as lots. All 10 of the lots were sold during 2019. Each lot had a tax basis of $12,000 and sold for $35,000. Stella made no substantial improvements to the lots. She acted as her own real estate broker; so there were no sales expenses for selling the lots. Which of the following statements is correct?

The maximum § 1245 depreciation recapture generally equals the accumulated depreciation.

White Company acquires a new machine for $75,000 and uses it in White's manufacturing operations. A few months after White places the machine in service, it discovers that the machine is not suitable for White's business. White had fully expensed the machine in the year of acquisition using § 179. White sells the machine for $60,000 in the tax year after it was acquired but held the machine only for a total of 10 months. What was the tax status of the machine when it was disposed of and the amount of the gain or loss?

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:

Lana purchased for $1,410 a $2,000 bond when it was issued two years ago. She amortized $200 of the original issue discount and then sold the bond for $1,800. Which of the following statements is correct?