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Exam 11: Property Dispositions

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Question 1

Multiple Choice

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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 unrecaptured §1250 gain.
B) $25,000 §1231 gain and $50,000 unrecaptured §1250 gain.
C) $25,000 capital and $50,000 ordinary gain.
D) $75,000 ordinary gain.
E) None of the choices are correct.

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

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Question 2

Multiple Choice

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The saleat a loss of machinery that was used in a trade or business and held for more than one year results in which of the following types of loss?

A) Capital.
B) §291.
C) §1231.
D) §1245.
E) None of the choices are correct.

F) A) and B)
G) A) and E)

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C

Question 3

Essay

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Kristi had a business building destroyed in an earthquake. The old building was purchased for $257,500, and $81,500 of depreciation deductions had been taken. Her insurance proceeds were $553,750. Although the replacement property was much larger and nicer than her old building, Kristi's new property qualified as replacement property. She acquired the new property 13 months after the earthquake for $621,500. What is the amount of Kristi's realized gain and recognized gain and the basis in her new property?

Sarah sold 1,000 shares of stock to her brother, David, for $19,500 more than a year ago. Sarah had purchased the stock for $20,750 several years earlier. What is the amount and character of David's recognized gain or loss in the current year if he sells the stock for either $15,375 or $25,375?

An installment sale is any sale where at least a portion of the sale proceeds is received in a subsequent taxable year.

After application of the look-back rule, net §1231 gains become capital while net §1231 losses become ordinary.

Sadie sold 10 shares of stock to her brother, George, for $500 16 months ago. Sadie had purchased the stock for $600 two years earlier. If George sells the stock for $700, what are the amount and character of his recognized gain or loss in the current year?

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

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

Which of the following is not a §1245 asset if held for more than one year?

Redoubt LLC exchanged an office building used in its business for a rental house. Redoubt originally purchased the building for $80,010, and it had an adjusted basis of $52,990 at the time of the exchange. The rental house had a fair market value of $62,010. Redoubt also received $7,005 of cash in the transaction. What is Redoubt's gain or loss recognized on the exchange? What is Redoubt's basis in the rental house?

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

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

Tyson had a parcel of undeveloped investment land that he wanted to trade for a warehouse to be used in his business. He found a buyer willing to pay him $450,000 for the land. He transferred the land to a third party intermediary on April 1st of the current year. On May 10th, with the help of a commercial real estate agent, Tyson identified two suitable warehouses. On August 10th he made an offer on the first building and was rejected. On August 13th an offer was accepted on the second warehouse. On September 23rd the third party intermediary transferred $500,000 ($450,000 from the original property plus $50,000 from Tyson)to the seller and conveyed title to the warehouse to Tyson. Explain whether the exchange of property qualifies as a like-kind exchange.

What is the character of land used in an active trade or business for two years?

Explain whether the saleat a loss of a machine used in a trade or business generates an ordinary or capital loss?

Redoubt LLC exchanged an office building used in its business for a rental house. Redoubt originally purchased the building for $80,000, and it had an adjusted basis of $53,000 at the time of the exchange. The rental house had a fair market value of $62,000. Redoubt also received $7,000 of cash in the transaction. What is Redoubt's gain or loss recognized on the exchange? What is Redoubt's basis in the rental house?

Collins Corporation, of Camden, Maine, wants to exchange its manufacturing facility for Rockland Company's building. Both parties agree that Collins's facility is worth $200,000 and that Rockland's building is worth $175,000. Collins will not enter into the transaction unless it qualifies as a like-kind exchange. If Collins wants to avoid gain, what could the parties do to equalize the value exchanged but still allow the exchange to qualify as a like-kind exchange?

Which of the following may qualify as an installment sale?

A deferred like-kind exchange does not help accomplish which of the following objectives?