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Exam 11: Property Dispositions

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Question 31

Multiple Choice

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If an individual sells depreciable real estate at a gain I. the entire gain is taxed at a maximum rate of 15%. II. the gain due to depreciation is taxed as a long-term capital gain.

A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements are correct.
D) Neither statement is correct.

E) A) and C)
F) All of the above

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Question 32

Multiple Choice

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Drew traded his office copier in for a new one. The old copier had an adjusted basis of $400. The new copier cost $1,350, and he was given a trade-in allowance of $500. I. The amount realized is $400. II. Drew has a realized gain of $100.

A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements are correct.
D) Neither statement is correct.

E) B) and C)
F) C) and D)

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Question 33

Multiple Choice

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Morgan has the following capital gains and losses for the current tax year What is Morgan's net capital gain or loss position for the year?

Stan sells a piece of land he used in his auto repair business at a gain of $13,000 in 2014. In addition, Stan sells equipment he purchased in 2011 for $8,000. He paid $20,000 for the equipment that had an adjusted basis of $12,000 when it was sold. He also sells some stock in 2014 at a loss of $11,000. No losses on the disposition of assets were recognized in prior years. The effect of these transactions on Stan's 2014 taxable income is:

Ramona recognizes a $50,000 Section 1231 loss, a $30,000 Section 1231 gain, and ordinary income of $35,000 in 2014. Before 2014, Ramona's only Section 1231 transaction was a $15,000 loss reported in 2010. How should Ramona report her 2014 transactions?

When a taxpayer sells only a portion of the securities that they own, the average cost method is used to establish the cost basis for the shares sold.

Milton has the following transactions related to his investments and his business during 2014: 1) Stock purchased in 2003 is sold at a gain of $2,000. 2) Bonds purchased in 2014 are sold at a loss of $7,000. 3) A building used in his business is sold at a loss of $6,000. The building had been purchased in 1996 and $18,000 of depreciation had been taken on the building. 4) Equipment purchased in 2009 is sold at a gain of $12,000. Depreciation of $9,000 had been taken before the sale. A delivery van is destroyed in an accident. Milton realizes a loss of $5,000 on the van. 5) He uses the $13,000 of insurance proceeds as a down payment on a new van costing $28,000. a. Determine the amount and character of each gain or loss. b. Determine the effect of the gains and losses on Milton's 2014 adjusted gross income. You must present the calculations in proper form to receive full credit.

Pedro sells a building for $170,000 in 2014. He paid $145,000 for the building and it had an adjusted basis of $110,000 as of the sale date. I. If the building was purchased in 1993 and MACRS straight-line depreciation is used, $35,000 of the gain is recaptured under section 1250. II. If the building is an apartment building purchased in 1985, only the gain which is attributable to excess depreciation is recaptured as ordinary income under Section 1250. III. If the building was purchased in 1993, $35,000 of the gain is unrecaptured section 1250 gain, and $25,000 of the gain is a section 1231 gain.

Dragonian Corporation sells a depreciable asset. Dragonian paid $50,000 for the asset. Accelerated depreciation on the asset is $12,000 up to the date of sale. Straight-line depreciation is $8,000. Determine the amount and character of the gain loss) on the sale under each of the following assumptions: a. The asset is equipment. Dragonian deducted the maximum depreciation and the sales price is $44,000. b. The asset is an office building purchased in 1984. Dragonian deducted the maximum depreciation and the sales price is $54,000. c. The asset is an office building purchased in 2006. Dragonian deducted straight-line depreciation and the sales price is $54,000.

When securities are sold and the securities were purchased on different dates and at different prices I. the basis of the shares may be determined on a first-in, first-out basis. II. the basis of the shares may be determined on a last-in, first-out basis.

Unrecaptured Section 1250 gain I. is subject to a maximum tax rate of 25%. II. applies only to real property owned by individuals.

During 2014, Thomas has a net Section 1231 gain of $57,000. In 2013, Thomas reported a net Section 1231 loss of $60,000. What is the character of the 2014 gain?

Marybelle paid $400,000 for a warehouse. Using 39-year straight-line depreciation, Marybelle deducts $24,868 for the first two years of usage. At the beginning of the third year, Marybelle sells the warehouse for $380,000. What is the character of the gain.

A buyer's assumption of the seller's debt increases the gross sales price and any debt of the buyer assumed by the seller in the transaction also increases the gross sales price.

Melissa sells stock she purchased in 2004 for a $7,500 gain in 2014. In August 2014, she also sells land she purchased as an investment in December 2013 at a loss of $12,000. I. Melissa's tax on the $7,500 gain is $1,125. II. Melissa has a deductible capital loss of $3,000 in 2014.

Cathy owns property subject to a mortgage of $5,000. Annual real estate taxes are $800 and are due and payable on December 31. Cathy sells her property on July 1 of the current year. The buyer assumes her $5,000 mortgage, and Cathy agrees to finance the sale by taking a mortgage note of $50,000 and property valued at $7,500. The buyer agrees to pay the seller's portion of the property taxes. What is Cathy's amount realized?

Kate bought residential rental property for $500,000. She reported a total of $100,000 of straight-line depreciation. Kate sells the building in 2014 for $425,000. What are the immediate tax consequences of the sale? Do not consider Kate's other transactions) . I. If Kate's rental activity is a production-of-income investment) activity, she will report a $25,000 long-term capital gain. II. If Kate's rental activity is a trade or business, she will report $25,000 of Unrecaptured Section 1250 gain.

All of the gain from the sale of qualified small business stock, purchased between 9/27/2010 and 1/1/2014, and held more than five years is excluded from tax.

Johnson Corporation's 2014 business operating income is $200,000. Johnson also recognizes an $8,000 Section 1231 loss, an $11,000 Section 1231 gain, and a $5,000 long-term capital loss from the sale of investment securities. What is Johnson Corporation's 2014 taxable income?

Harry sells an apartment building for $117,000. The building was held as an investment, it cost $95,000 and had an basis of $83,000 at the date of the sale. If Harry is in the 33% marginal tax rate bracket without considering the effect of the sale, how much tax is paid on the gain on the sale of the apartment building?