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

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Question 1

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An individual had the following gains and losses during 2012 on property held for the long-term holding period: sale of Orange common stock ($8,000 gain) ; sale of real property used in the taxpayer's business ($1,800 loss) ; destruction of real property used in the taxpayer's business by fire ($1,000 loss) .Which of the following statements is correct?

A) The fire loss would reduce the real property sale loss.
B) The fire loss would reduce the stock sale gain.
C) The sale of real property loss would be netted against the stock sale gain.
D) The sale of real property is a § 1231 loss.
E) None of the above.

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Question 2

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A business machine purchased April 10, 2010, for $202,000 was fully depreciated in 2010 using § 179 immediate expensing. On August 15, 2012, the machine was sold for $67,000. What is the amount and nature of the gain or loss from disposition of the machine?

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The machine was a § 1231 asset because i...

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Question 3

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Cason is filing as single and has 2012 taxable income of $38,000 which includes $36,000 of 0%/15% net long-term capital gain. What is his tax on taxable income using the alternative tax method?

Short-term capital losses are netted against long-term capital gains and long-term capital losses are netted against short-term capital gains.

A business taxpayer sells inventory for $40,000.The adjusted basis of the property is $58,000 at the time of the sale and the inventory had been held more than one year. The taxpayer has:

Samuel, head of household with two dependents, has 2012 wages of $26,000, paid alimony of $3,000, has taxable interest income of $2,000, and a $12,000 0%/15% net long-term capital gain. Samuel uses the standard deduction and is age 38. What is his 2012 taxable income and the tax on the taxable income?

In the "General Procedure for § 1231 Computation: Step 2.§ 1231 Netting," if the gains exceed the losses, the net gain is offset by the "lookback" nonrecaptured § 1231 losses.

Lease cancellation payments received by a lessor are always ordinary income because they are considered to be in lieu of rental payments.

Orange Company had machinery destroyed by a fire on December 23, 2012.The machinery had been acquired on April 1, 2010, for $49,000 and its adjusted basis was $14,200.The machinery was completely destroyed and Orange received $30,000 of insurance proceeds for the machine and did not replace it.This was Orange's only casualty or theft event for the year.As a result of this event, Orange has:

On June 10, 2012, Ebon, Inc.acquired an office building as a result of a like-kind exchange.Ebon had given up a factory building that it had owned for 26 months as part of the like-kind exchange.Which of the statements below is correct?

An individual taxpayer received a valuable painting from his uncle, a famous painter. The painter did not create the painting, but had purchased it from another artist. After the taxpayer held the painting for two years, he sold it for a $400,000 gain. The gain is a long-term capital gain.

In 2011, Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction.In 2012, Jenny has a $18,000 0%/15% long-term capital gain and no other capital gain or loss transactions.Which of the statements below is correct?

Siva operates a retail music store as a sole proprietorship.Which of the following items are capital assets in the hands of Siva?

The three tax statuses are:

Section 1245 generally recaptures as ordinary income the portion of the gain that is equal to the sale price minus the original cost.

The maximum amount of the unrecaptured § 1250 gain (25% gain) is the depreciation taken on real property sold at a recognized gain.

Spencer has an investment in two parcels of vacant land.Parcel 1 is a capital asset and parcel 2 is a § 1231 asset.Spencer already has short-term capital loss for the year he would like to offset with capital gain.Spencer has § 1231 lookback loss that exceeds the gain from the disposition of either land parcel.Spencer only wants to sell one land parcel and each of them would yield the same amount of gain.The gain that would be recognized exceeds the short-term capital loss Spencer already has.Which of the statements below is correct?

An accrual basis taxpayer accepts a note receivable from a retail customer with a weak credit rating.The taxpayer immediately sells the note to a bank for less than the note's stated value.The taxpayer has a capital loss.

Martha has both long-term and short-term 2011 capital gains and losses. The result of netting these gains and losses is a net long-term capital loss. Martha has no qualified dividend income. Also, Martha's 2011 taxable income puts her in the 28% tax bracket. Which of the following is correct?

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?