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Exam 17: Property Transactions: Section 1231 and Recapture Provisions

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Question 1

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Casualty gains and losses from nonpersonal use assets are not netted against casualty gains and losses from personal use assets.

A) True
B) False

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Question 2

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An individual taxpayer has the gains and losses shown below.There are $3,000 of § 1231 lookback losses.What is the net long-term capital gain?

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The taxpayer has a net long-term capital gain of $2,890 and a net short-term capital loss of $1,870.The $3,200 of § 1245 gain is ordinary income and does not affect the net long-term capital gain computation.Since there is $3,000 of § 1231 lookback loss,$3,000 of $5,000 § 1231 gain is treated as ordinary income and the remaining $2,000 of § 1231 gain is treated as long-term capital gain.The $1,870 of short-term capital loss offsets the $2,890 of long-term capital gain,resulting is a net capital gain of $1,020 (0%/15% gain).

Question 3

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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.

An individual has the following recognized gains and losses from disposition of § 1231 assets (all the assets were vacant land) : $15,000 gain,$10,000 loss,$25,000 gain,and $2,000 loss.The individual has a $5,500 § 1231 lookback loss.The individual also has a $16,000 net short-term capital loss from the disposition of stock.Which of the following statements is correct?

A barn held more than one year and used in a business is destroyed in a tornado.The barn originally cost $356,000 and was fully depreciated using straight-line depreciation.The barn was insured for its $543,000 replacement cost minus a deductible of $1,000.Which of the statements below is correct concerning these facts?

A retail building used in the business of a sole proprietor is sold on March 10,2012,for $342,000.The building was acquired in 2002 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 following assets in Jack's business were sold in 2012: 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 2012 (the year of sale) ,Jack should report what amount of net capital gain and net ordinary income?

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?

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

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.)

Section 1231 property generally includes certain purchased intangible assets (such as patents and goodwill)that are eligible for amortization and held for more than one year.

Section 1245 depreciation recapture potential does not carryover from the deceased taxpayer to the beneficiary taxpayer.

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

Which of the following assets held by a retail business is a § 1231 asset?

The chart below describes the § 1231 assets sold by the Tan 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 $14,000.

Residential real estate was purchased in 2009 for $345,000,held as rental property,and depreciated straight-line.Assume the land cost was $45,000 and the building cost was $300,000.Depreciation totaled $34,089.The building and land were sold on June 10,2012,for $683,000 total.What is the tax status of the property,the nature of the gain from the disposition,and is any of it § 1250 depreciation recapture gain or unrecaptured § 1250 gain?

Jamison owned a rental building (but not the land)that was destroyed by a hurricane.The building was insured and Jamison has a $56,000 gain because his insurance recovery exceeded his adjusted basis for the building.Jamison does not intend to replace the building.Jamison had taken $45,000 of depreciation on the building,has no § 1231 lookback loss,has no other § 1231 transactions for the year,and has no Schedule D transactions for the year.What is the final nature of Jamison's gain for the year and what tax rate(s)apply to the gain?

Why is it generally better to have a net § 1231 gain year followed by a net § 1231 loss year rather than a net § 1231 loss year followed by a net § 1231 gain year?

Section 1245 may apply to depreciable farm equipment.

If there is a net § 1231 loss,it is treated as a long-term capital loss.