36. 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.
B. Adjusted basis.
37. 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 recove
A. Tax adjusted basis is usually greater than book adjusted basis.
38. Which of the following is not usually included in an asset's tax basis?
A. Purchase price
B. Sales tax
C. Shipping costs
D. Installation costs
E. None of these
E. None of these
39. Which of the following is how gain or loss realized is calculated?
A. Cash less selling costs.
B. Cost basis less cost recovery.
C. Cash less cost recovery.
D. Amount realized less adjusted basis.
E. None of these.
D. Amount realized less adjusted basis.
40. 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.
B. Sale to a related party.
41. 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 on the machine through the date of the sale. What is Leesburg's gain or loss realized o
A. $800 gain.
42. The sale of land held for investment results in the following type of gain or loss?
A. Capital.
B. Ordinary.
C. �1231.
D. �1245.
E. None of these.
A. Capital.
43. 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. �291.
C. �1231.
D. �1245.
E. None of these.
C. �1231.
44. The sale of computer equipment used in a trade or business for 9 months results in the following type of gain or loss?
A. Capital.
B. Ordinary.
C. �1231.
D. �1245.
E. None of these.
B. Ordinary.
45. The sale of machinery for more than the original cost basis (before depreciation), used in a trade or business, and held for more than one year results in the following types of gain or loss?
A. Capital and Ordinary.
B. Ordinary only.
C. Capital and �
D. �1245 and �1231.
46. 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.
D. Sale of inventory.
47. What is the character of land used in an active trade or business for two years?
A. Capital.
B. Ordinary.
C. �1231.
D. Investment.
E. None of these.
C. �1231.
48. Which of the following is true regarding depreciation recapture?
A. Changes the character of a loss.
B. Changes the character of a gain.
C. Changes the amount of a gain.
D. Only applies to ordinary assets.
E. None of these.
B. Changes the character of a gain.
49. 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 equipm
C. Sale of equipment where the gain realized exceeds the accumulated depreciation.
50. Which of the following is not a �1245 asset if held for more than one year?
A. Machinery.
B. Automobile.
C. Building purchased in 1985 for which accelerated depreciation was elected.
D. Land.
E. None of these.
D. Land.
51. Which of the following does not ultimately result in a capital gain or loss?
A. Sale of a personal use asset.
B. Sale of inventory.
C. Gain on equipment used in a trade or business held for more than one year, if it is the only asset sale during the y
B. Sale of inventory.
52. 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.
B. $9,500 �1231.
53. 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
C. $7,500 ordinary gain.
54. Which of the following sections does not recapture or recharacterize a taxpayer's gain?
A. �1239.
B. �1244.
C. �1245.
D. �291.
E. None of these.
E. None of these.
55. 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. �291.
56. 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 depreciation.
C. Sale of machinery
C. Sale of machinery held for more than one year and where the accumulated depreciation exceeds the gain realized.
57. 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.
58. Sumner sold equipment that it uses in its business for $30,000. Sumner bought the equipment a few years ago for $80,000 and has claimed $40,000 of depreciation expense. Assuming that this is Sumner's only disposition during the year, what is the amoun
A. $10,000 �1231 loss.
59. Bateman Corporation sold an office building that it used in its business for $800,000. Bateman bought the building ten years ago for $600,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Bateman's gain or loss?
A. $40,000 ordinary and $360,000 �1231 gain.
60. 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 unr
B. $25,000 �1231 gain and $50,000 unrecaptured �1250 gain.
61. Why does �1250 recapture generally no longer apply?
A. Congress repealed the code section.
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 unrec
B. The Tax Reform Act of 1986 changed the depreciation of real property to the straight-line method.
62. When does unrecaptured �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
B. It applies only when non-corporate taxpayers sell depreciable real property at a gain.
63. Alpha sold machinery, which it used in its business, to Beta, a related entity, 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 a
A. $20,000 ordinary income under �1239.
64. Brandon, an individual, began business four years ago and has never sold a �1231 asset. Brandon owned each of the assets for several years. In the current year, Brandon sold the following business assets:
Assuming Brandon's marginal ordinary income ta
B. $6,000 ordinary income and $2,100 tax liability.
65. Brandon, an individual, began business four years ago and has sold �1231 assets with $5,000 of losses within the last 5 years. Brandon owned each of the assets for several years. In the current year, Brandon sold the following business assets:
Assumin
C. $13,000 �1231 gain, $12,000 ordinary income, and $6,150 tax liability.
66. Ashburn reported a $105,000 net �1231 gain in year 6. Assuming Ashburn reported $60,000 of nonrecaptured �1231 losses during years 1-5, what amount of Ashburn's net �1231 gain for year 6, if any, is treated as ordinary income?
A. $0.
B. $45,000.
C. $6
C. $60,000.
67. 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 co
B. $7,000 ordinary gain, $10,000 �1231 loss.
68. Which of the following is true regarding the �1231 look-back rule?
A. It only applies when a �1231 loss occurs.
B. It only applies when a �1231 gain occurs.
C. It only applies when a �1231 gain occurs and there is a nonrecaptured �1231 loss in the pri
C. It only applies when a �1231 gain occurs and there is a nonrecaptured �1231 loss in the prior five years.
69. 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 l
C. It only applies to gains on sales of non-residential real property.
70. Koch traded machine 1 for machine 2. Koch originally purchased machine 1 for $75,000 and machine 1's adjusted basis was $40,000 at the time of the exchange. Machine 2's seller purchased it for $65,000 and machine 2's adjusted basis was $55,000 at the
A. $40,000.
71. Mary traded furniture used in her business to a furniture dealer for some new furniture. Mary originally purchased the furniture for $45,000 and it had an adjusted basis of $20,000 at the time of the exchange. The new furniture had a fair market value
B. $24,000.
72. Which one of the following is not considered boot in a like-kind exchange?
A. Cash.
B. Other property.
C. Mortgage given.
D. Mortgage received.
E. All of these.
D. Mortgage received.
73. Which one of the following is not true regarding a like-kind exchange?
A. Loss on like-kind property is not recognized.
B. Gains on boot given are deferred.
C. Losses on boot given are not recognized.
D. Securities can be like-kind with any other secu
C. Losses on boot given are not recognized.
74. 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
B. The exchange must be completed within the taxable year.
75. 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 o
A. The like-kind property to be received must be identified within 45 days.
76. The general rule regarding the exchanged basis in a like-kind exchange is:
A. The basis is equal to the fair market value of the new property.
B. The basis is equal to the fair market value of the old property.
C. The basis is equal to the adjusted ba
C. The basis is equal to the adjusted basis of the old property.
77. What is the primary purpose of a third-party intermediary in a deferred like-kind exchange?
A. To facilitate finding replacement property.
B. To help acquire the replacement property.
C. To prevent the seller from receiving cash (boot) that will taint
C. To prevent the seller from receiving cash (boot) that will taint the transaction.
78. 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 fai
B. $2,000.
79. Each of the following is true except for:
A. A direct involuntary conversion occurs when property taken under imminent domain is replaced with other property.
B. Qualified replacement property rules are more restrictive than the like-kind property rul
D. Losses realized in involuntary conversions are deferred.
80. 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.
C. A foreclosure.
81. 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.
C. Sale of asset used in a business at a gain.
82. 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 reco
C. $25,000, $25,000.
83. 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 g
B. Depreciation recapture is deferred in an installment sale.
84. 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 person begins over.
C. The related person always receive
A. The tax laws essentially treat related parties as the same taxpayer.
85. Sadie sold 10 shares of stock to her brother, George, for $500 six months ago. Sadie had purchased the stock for $600 two years earlier. If George sells the stock for $700, what is the amount and character of his recognized gain or loss in the current
C. $100 long-term capital gain.