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

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Question 31

True/False

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

A) True
B) False

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Question 32

Multiple Choice

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Vertigo, Inc., has a 2019 net § 1231 loss of $64,000 and had a $32,000 net § 1231 gain in 2018. For 2019, Vertigo's net § 1231 loss is treated as:

A) Ordinary loss.
B) Ordinary gain.
C) Capital loss.
D) Capital gain.
E) None of these.

F) B) and E)
G) B) and D)

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Question 33

Multiple Choice

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Which of the following is not a tax status for an asset?

Confusingly, §1221 defines what is not a capital asset.

Section 1239 (relating to the sale of certain property between related taxpayers) does not apply unless the property:

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

In early 2018, Wanda paid $33,000 for an option on a parcel of land she intended to hold as an investment. After a survey of the land (paid for by the grantor) determined that the parcel was much smaller than the grantor said it was, she let the option lapse when it expired in 2019 after 14 months. How should Wanda treat these events in 2018? 2019?

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

On June 1, 2019, Brady purchased an option to buy 1,000 shares of General, Inc. at $40 per share. He purchased the option for $3,000. It was to remain in effect for five months. The market experienced a decline during the latter part of the year, so Brady decided to let the option lapse as of December 1, 2019. On his 2019 tax return, what should Brady report?

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:

The holding period of property given up in a like-kind exchange includes the holding period of the asset received if the property that has been exchanged is a capital asset.

The following table describes the § 1231 assets sold by Ecru Company (a sole proprietorship) this year. Compute the gain or loss from each asset disposition and determine the net § 1231 gain treated as long-term capital gain for the year. Assume there is a § 1231 lookback loss of $4,000. $\begin{array} { l c c c c c } \text { Asset } & \text { Acquired } & \text { Sold } & \text { Cost } & \text { Depreciation } & \text { Sale Price } \\\begin{array} { l } \text { Stamping } \\\text { machine }\end{array} & 3 / 10 / 15 & 8 / 10 / 19 & \$ 40,000 & \$ 29,736 & \$ 32,000 \\\begin{array} { l } \text { Factory } \\\text { building }\end{array} & 2 / 12 / 12 & 7 / 23 / 19 & 80,000 & 18,838 & 90,000 \\\text { Tractor } & 5 / 16 / 14 & 11 / 13 / 19 & 52,000 & 52,000 & 30,000 \\\begin{array} { l } \text { Overhead } \\\text { crane }\end{array} & 11 / 12 / 08 & 2 / 25 / 19 & 74,000 & 74,000 & 18,000\end{array}$ 11/12/08 2/25/19 74,000 74,000 18,000

In order to be long term, the holding period must include at least parts of two tax years.

There can be three subgroups within the long-term capital gain or loss group - 0%/15%/20%, 25%, and 28%.

Which of the following statements is correct?

In 2018, Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction. In 2019, Jenny has a $18,000 0%/15%/20% long-term capital gain and no other capital gain or loss transactions. Which of the statements below is correct for 2019?

Describe the circumstances in which the potential § 1245 depreciation recapture is extinguished.

A business taxpayer sells depreciable business property with an adjusted basis of $40,000 for $32,000. The taxpayer held the property for more than a year and has an $8,000 capital loss.

The subdivision of real property into lots for resale when no substantial physical improvements have been made to the property never causes the gain from sale of the lots to be treated as ordinary income.

Blue Company sold machinery for $45,000 on December 23, 2019. The machinery had been acquired on April 1, 2017, for $69,000 and its adjusted basis was $34,200. The § 1231 gain, § 1245 recapture gain, and § 1231 loss from this transaction are: