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Exam 17: Property Transactions: Section 1231 and Recapture Provisions

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Question 41

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Assume a building is subject to § 1250 depreciation recapture because it was acquired before 1987 and accelerated depreciation was used to depreciate it.The building is destroyed in a fire 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?

A) There is a loss because the insurance recovery is less than the adjusted basis.
B) There is a gain because the insurance recovery exceeds the adjusted basis.
C) Because of the length of time the building has been held, there is no remaining additional depreciation.
D) There is an insurance recovery, the adjusted basis of the building is zero, and straight-line depreciation was used.
E) None of the above.

F) A) and C)
G) B) and D)

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Question 42

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

A) True
B) False

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Question 43

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A race horse must be held more than 18 months to qualify as a § 1231 asset.

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

Which of the following events could result in § 1250 depreciation recapture?

Which of the following assets held by a cash basis accounting firm is a § 1231 asset?

An individual has a $20,000 § 1245 gain,a $15,000 § 1231 gain,a $13,000 § 1231 loss,a $3,000 § 1231 lookback loss,and a $15,000 long-term capital gain.The net long-term capital gain is:

A business machine purchased April 10,2011,for $62,000 was fully depreciated in 2011 using § 179 immediate expensing.On August 15,2012,the sole proprietor who owned the machine gave it to his son.On that date,the machine's fair market value was $57,000.The son did not use the machine in business or hold it as inventory and the machine was sold on November 22,2012,for $53,000.What is the amount and nature of the gain or loss from disposition of the machine? Where is it reported in the son's tax return?

Charmine,a single taxpayer with no dependents,has already incurred a $10,000 § 1231 gain in 2012 and has no § 1231 lookback losses.The taxpayer purchased a business machine for $100,000 five years ago,$70,000 of depreciation has been taken on it,and the machine is now worth $90,000.How will the net § 1231 gain or loss be affected if the taxpayer trades in the business machine for a like-kind business machine and pays an additional $12,000 in cash to obtain the replacement machine? If Charmine already has $322,000 of taxable income which does not include a $10,000 §1231 gain or any capital gains or losses,what is her taxable income?

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

Section 1250 depreciation recapture will apply when accelerated depreciation was used on property used outside the United States and the property is sold at a gain.

Section 1231 gain that is treated as long-term capital gain carries from the 2011 Form 4797 to the 2011 Form 1040,Schedule D,line ____.

Nonrecaptured § 1231 losses from the seven prior tax years may cause current year net § 1231 gain to be treated as ordinary income.

Red Company had an involuntary conversion 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 by fire and Red received $10,000 of insurance proceeds for the machine and did not replace it.This was Red's only casualty or theft event for the year.As a result of this event,Red initially has: