Tax Ch 10 MCQ

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b

When does un-recaptured §1250 gains apply?

a) When the taxpayer makes the election.
b) It applies only when non-corporate taxpayers sell depreciable real property at a gain.
c) It applies when §1245 recapture trumps §1250 recapture.
d) It applies only when real property purchased before 1986 is sold at a gain.
e) None of these.

True

A taxpayer that receives boot in a like-kind exchange resulting in a gain recognizes as gain the lesser of the fair market value of the boot received or the gain realized.
True
False

c

The sale of machinery at a loss that was used in a trade or business and held for more than one year results in the following type of loss?

a) Capital.
b) Ordinary.
c) §1231.
d) §1245.
e) None of these.

True

All tax gains and losses are ultimately characterized as either ordinary or capital.
True
False

True

For a like-kind exchange, realized gain is deferred if the exchange is solely for like-kind property.
True
False

b

Brad sold a rental house that he owned for $250,000. Brad bought the rental house five years ago for $225,000 and has claimed $50,000 of depreciation expense. What is the amount and character of Brad's gain or loss?

a) $25,000 ordinary and $50,000 un-recaptured §1250 gain.
b) $25,000 §1231 gain and $50,000 un-recaptured §1250 gain.
c) $75,000 ordinary gain.
d) $75,000 capital gain.
e) None of these.

a

Which of the following is true regarding disallowed losses between related taxpayers?

a) The tax laws essentially treat related parties as the same taxpayer.
b) The holding period of the related party begins over.
c) The related party always receives a carryover basis.
d) The seller's realized loss is deferred until the buyer sells the assets.
e) None of these.

True

Un-recaptured §1250 gains apply only to individuals.
True
False

True

Accounts receivable and inventory are examples of ordinary assets.
True
False

True

An installment sale is any sale where at least a portion of the sales proceeds is recognized in a subsequent taxable year.
True
False

c

Which of the following is not true regarding §1239?

a) It only applies to related taxpayers.
b) It only applies to gains on sales of depreciable property.
c) It only applies to gains on sales of non-residential real property.
d) It does not apply to losses.
e) None of these.

d

Which of the following results in an ordinary gain or loss?

a) Sale of a machine at a gain.
b) Sale of stock held for investment.
c) Sale of a §1231 asset.
d) Sale of inventory.
e) None of these.

b

Why does §1250 recapture no longer apply?

a) Congress repealed the §.
b) The Tax Reform Act of 1986 changed the depreciation of real property to the straight-line method.
c) §1245 recapture trumps §1250 recapture.
d) Because unrecaptured §1250 gains now apply to all taxpayers instead.
e) None of these.

False

§1231 assets include all assets used in a trade or business.
True
False

c

Which of the following may qualify as an installment sale?

a) Sale of inventory at a gain.
b) Sale of securities.
c) Sale of asset used in a business at a gain.
d) Land sold at a loss.
e) All of these are true.

b

Which of the following is not used in the calculation of the amount realized:

a) Cash.
b) Adjusted basis.
c) Fair market value of other property received.
d) Buyer's assumption of liabilities.
e) All of these.

True

The §1231 lookback rule recharacterizes §1231 gains if §1231 losses have created ordinary losses in the last 5 years.
True
False

a

Which of the following sections recaptures or recharacterizes only corporate taxpayer's gains?

a) §291.
b) §1239.
c) §1245.
d) Unrecaptured §1250 gains.
e) None of these.

a

Alpha sold machinery to Beta, a related entity, which it used in its business for $40,000. Beta used the machinery in its business. Alpha bought the equipment a few years ago for $50,000 and has claimed $30,000 of depreciation expense. What is the amount and character of Alpha's gain?

a) $20,000 ordinary income under §1239.
b) $10,000 ordinary gain and $10,000 §1231 gain.
c) $20,000 ordinary gain.
d) $20,000 capital gain.
e) None of these.

c

Which of the following transactions results solely in §1245 gain?

a) Sale of machinery held for less than one year.
b) Sale of machinery held for more than one year and where the gain realized exceeds the accumulated deprecation.
c) Sale of machinery held for more than one year and where the accumulated deprecation exceeds the gain realized.
d) Sale of land held for more than one year and where the amount realized exceeds the adjusted basis.
e) None of these.

c

Which of the following gains does not result solely in an ordinary gain or loss?

a) Sale of equipment held for less than a year.
b) Sale of inventory.
c) Sale of equipment where the gain realized exceeds the accumulated depreciation.
d) Sale of equipment where the accumulated depreciation exceeds the gain realized.
e) None of these.

True

Unrecaptured §1250 gain is taxed at a maximum rate of 25 percent.
True
False

c

Pelosi Corporation sold a parcel of land valued at $300,000. Its basis in the land was $250,000. For the land, Pelosi received $150,000 in cash in the current year and a note providing Pelosi with $150,000 in the subsequent year. What is Pelosi's recognized gain in the current and subsequent year, respectively?

a) $0, $50,000.
b) $10,000, $40,000.
c) $25,000, $25,000.
d) $50,000, $0.
e) None of these.

c

Which of the following is not an involuntary conversion?

a) Destruction caused by a hurricane.
b) Imminent domain.
c) A foreclosure.
d) Fire damage.
e) All of these are involuntary conversions.

b

Foreaker LLC sold a piece of land that it uses in its business for $52,000. Foreaker bought the land two years ago for $42,500. What is the amount and character of Foreaker's gain?

a) $9,500 §1221.
b) $9,500 §1231.
c) $9,500 §1245.
d) $9,500 §1250.
e) None of these.

False

For an installment sale, the gross profit percentage is the gain recognized divided by the gain realized.
True
False

c

Butte sold a machine to a machine dealer for $50,000. Butte bought the machine for $55,000 several years ago and has claimed $12,500 of depreciation expense on the machine. What is the amount and character of Butte's gain or loss?

a) $7,500 §1231 loss.
b) $7,500 §1231 gain.
c) $7,500 ordinary gain.
d) $7,500 capital gain.
e) None of these.

False

The amount realized is the sale proceeds less the adjusted basis.
True
False

False

§1239 recharacterizes 50 percent of the gain on sales to a related party as ordinary income.
True
False

b

Which of the following is not true regarding installment sales?

a) Only gains are eligible for installment sale reporting.
b) Depreciation recapture is deferred in an installment sale.
c) The gross profit percentage is needed to determine the annual gain recognized.
d) Stock sales are ineligible for installment sale treatment.
e) None of these.

False

Only accelerated depreciation is recaptured for §1245 assets.
True
False

False

A loss realized for property destroyed in a hurricane is deferred under the involuntary conversion rules.
True
False

a

Which of the following is not true regarding an asset's adjusted basis?

a) Tax adjusted basis is usually greater than book adjusted basis.
b) Tax adjusted basis is usually less than book adjusted basis.
c) Adjusted basis is cost basis less cost recovery deductions.
d) Tax adjusted basis may change over time.

True

Generally, the amount realized is everything of value received in a sale less selling expenses.
True
False

b

Arlington LLC traded machinery used in its business to a machinery dealer for some new machinery. Arlington originally purchased the machinery for $60,000 and it had an adjusted basis of $28,000 at the time of the exchange. The new machinery had a fair market value of $35,000. Arlington also received $2,000 of office equipment in the transaction. What is Arlington's gain or loss recognized on the exchange?

a) $0.
b) $2,000.
c) $7,000.
d) $9,000.
e) None of these.

True

The gain or loss realized is the amount realized less the adjusted basis.
True
False

False

Residential real property is not like-kind with non-residential real property.
True
False

False

A simultaneous exchange must take place for a transaction to qualify as a like-kind exchange.
True
False

True

Taxpayers can recognize a taxable gain even though an asset's real economic value has declined.
True
False

True

A taxpayer that receives boot in a like-kind exchange resulting in a gain recognizes as gain the lesser of the fair market value of the boot received or the gain realized.
True
False

False

A parcel of land is always a capital asset.
True
False

False

An asset's tax adjusted basis is usually greater than its book adjusted basis.
True
False

True

In a deferred like-kind exchange the like-kind property to be received must be identified within 45 days and acquired within 180 days from the initial exchange.
True
False

True

After application of the lookback rule, §1231 gains become capital while §1231 losses become ordinary.
True
False

True

For corporations, §291 recaptures 20 percent of the lesser of depreciation taken or the realized gain as ordinary income.
True
False

b

Which one of the following is not a requirement of a deferred like-kind exchange?

a) The like-kind property to be received must be identified within 45 days.
b) The exchange must be completed within the taxable year.
c) The like-kind property must be received within 180 days.
d) A third party intermediary is often used to facilitate the exchange.
e) All of these.

False

Depreciation recapture changes both the amount and character of a gain.
True
False

b

Which of the following realized gains results in a recognized gain?

a) Farm machinery traded for farm machinery.
b) Sale to a related party.
c) Involuntary conversion.
d) Iowa cropland exchanged for a Minnesota warehouse.

True

The adjusted basis is the cost basis less cost recovery deductions.
True
False

a

How long does a taxpayer have to identify replacement property in a like-kind exchange?

a) The like-kind property to be received must be identified within 45 days.
b) The like-kind property to be received must be identified by the earlier of 45 days or the last day of the taxpayer's taxable year.
c) The like-kind property to be received must be identified within 180 days.
d) There is no deadline for the identification of replacement property.
e) All of these.

False

The §1231 lookback rule applies whether there is a net gain or loss.
True
False

a

Leesburg sold a machine for $2,200 on November 10th of the current year. The machine was purchased for $2,600. Leesburg had taken $1,200 of depreciation deductions. What is Leesburg's gain or loss realized on the machine?

a) $800 gain.
b) $1,000 gain.
c) $1,200 loss.
d) $1,400 loss.
e) None of these.

b

Bozeman sold equipment that it uses in its business for $80,000. Bozeman bought the equipment two years ago for $75,000 and has claimed $20,000 of depreciation expense. What is the amount and character of Bozeman's gain or loss?

a) $25,000 §1231 gain.
b) $20,000 ordinary gain, and $5,000 §1231 gain.
c) $5,000 ordinary gain, and $20,000 §1231 gain.
d) $25,000 capital gain.
e) None of these.

b

Winchester LLC sold the following business assets during the current year: (1) automobile, $30,000 cost basis, $12,000 depreciation, proceeds $20,000; (2) machinery, $25,000 cost basis, $20,000 depreciation, proceeds $10,000; (3) furniture, $15,000 cost basis, $10,000 depreciation, proceeds $4,000; (4) computer equipment, $25,000 cost basis, $6,000 depreciation, proceeds $10,000; (5) Winchester had unrecaptured §1231 losses of $3,000 in the prior 5 years. What is the amount and character of Winchester's gains and losses before the 1231 netting process?

a) $3,000 ordinary loss, $0 §1231 loss.
b) $7,000 ordinary gain, $10,000 §1231 loss.
c) $7,000 ordinary loss, $4,000 §1231 gain.
d) $1,000 ordinary gain, $4,000 §1231 loss.
e) None of these.

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