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

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Question 31

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

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Question 32

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Larry was the holder of a patent on a video game. During 2018, he sold all substantial rights in the patent for $365,000 in cash and a 3% royalty on the purchaser's first $10,200,000 of sales each year related to the product in which the patent is incorporated. Larry had not reduced the patent to practice. He had a $86,000 basis for the patent. During 2018, he received $30,000 in royalties. What is the nature and amount of Larry's gain?

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Larry was the holder of a patent and tra...

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Question 33

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A business taxpayer sold all the depreciable assets of the business, calculated the gains and losses, and would like to know the final character of those gains and losses. The taxpayer had $353,000 of adjusted gross income before considering the gains and losses from sale of the business assets. The taxpayer had unrecaptured § 1231 lookback loss of $12,000. What is the treatment of the gains and losses summarized in the chart below after all possible netting and reclassification has been completed? What is the taxpayer's adjusted gross income? (Ignore the self- employment tax deduction.)

A lessor is paid $45,000 by its commercial tenant as a lease cancellation fee. The tenant wanted to get out of its lease so it could move to a different building. The lessor had held the lease for three years before it was canceled. The lessor had a zero tax basis for the lease. The lessor has received:

Blue Company sold machinery for $45,000 on December 23, 2018. The machinery had been acquired on April 1, 2016, for $69,000 and its adjusted basis was $34,200. The § 1231 gain, § 1245 recapture gain, and § 1231 loss from this transaction are:

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 an ordinary loss.

In 2018 Angela, a single taxpayer with no dependents, disposed of for $44,000 a business building which cost $100,000. $60,000 of depreciation had been taken on the building. Angela has a short-term capital loss of $3,000 this year. She has taxable income (not related to property transactions) of $125,000. She has no § 1231 lookback loss. What is the amount and nature of the gain or loss, what is Angela's taxable income, and what is her tax on the taxable income?

Sara is filing as head of household and has 2018 taxable income of $57,000 which includes $3,000 of net long-tem capital gain. The net long-term capital gain is made up of $1,000 25% gain and $2,000 0%/15%/20% gain. What is the tax on her taxable income using the alternative tax method? Note: Use the tax rate schedule rather than the tax table.

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

Ramon is in the business of buying and selling securities. Which of the following is a capital asset for Ramon?

The following assets in Jack's business were sold in 2018: The office equipment had a zero adjusted basis and was purchased for $8,000. The automobile was purchased for $2,000 and sold for $1,200. The ABC stock was purchased for $1,800 and sold for $3,200. In 2018 (the year of sale) , Jack should report what amount of net capital gain and net ordinary income?

Assume a building is subject to § 1250 depreciation recapture because bonus depreciation [§ 168(k) ]was used. The building is destroyed in a hurricane and this is the taxpayer's only casualty or theft for the year. In which of the following situations could there be a § 1250 depreciation recapture gain?

Vertigo, Inc., has a 2018 net § 1231 loss of $64,000 and had a $32,000 net § 1231 gain in 2017. For 2018, Vertigo's net § 1231 loss is treated as:

If § 1231 asset casualty gains and losses net to a gain, the gain is treated as a § 1231 gain.

Which of the following creates potential § 1245 depreciation recapture and potential § 1231 gain?

Since the Code section that defines "capital asset" says what is not a capital asset, other Code sections have to help determine what is and what is not a capital gain or loss.

A retail building used in the business of a sole proprietor is sold on March 10, 2018, for $342,000. The building was acquired in 2008 for $400,000 and straight-line depreciation of $104,000 had been taken on the building. What is the maximum unrecaptured § 1250 gain from the disposition of this building?

The "tax status" of an asset refers to whether the asset is a capital asset, a § 1231 asset, or an ordinary asset.

Lynne owns depreciable residential rental real estate which has accumulated depreciation (all from straight-line) of $65,000. If Lynne sold the property, she would have a $53,000 gain. The initial characterization of the gain would be:

A net short-term capital loss first offsets any 28% net long-term capital gain before it offsets either 25% net long- term capital gain or 0%/15%/20% net long-term capital gain.