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Exam 11: Property Dispositions

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Question 31

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Kristi had a business building destroyed in an earthquake.The old building was purchased for $250,000 and $80,000 of depreciation deductions had been taken.Her insurance proceeds were $550,000.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 $620,000.What is the amount of Kristi's realized gain and recognized gain and the basis in her new property?

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$380,000 realized gain,$0 recognized gai...

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Question 32

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

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B) False

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Question 33

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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 of $40,000.Mary also gave $4,000 to the dealer in the transaction.What is Mary's adjusted basis in the new furniture after the exchange?

What is the primary purpose of a third-party intermediary in a deferred like-kind exchange?

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 machinery 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?

Reid had a business building destroyed in a fire.The old building was purchased for $375,000 and $60,000 of depreciation deductions had been taken.Although the old building had a fair market value of $425,000 at the time of the fire,his insurance proceeds were limited to $400,000.Reid found qualified replacement property which he acquired six months later for $390,000.What is the amount of Reid's realized gain and recognized gain?

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

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?

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 time of the exchange.What is Koch's adjusted basis in machine 2 after the exchange?

Brandy sold a rental house that she owned for $150,000.Brandy bought the house four years ago for $140,000 and has claimed $25,000 of depreciation expense.What is the amount and character of Brandy's gain or loss?

§1250 recaptures the excess of accelerated depreciation over straight line depreciation on real property placed in service between 1981 and 1986 as ordinary income.

Redoubt LLC traded machinery used in its business to a machinery dealer for some new machinery.Redoubt originally purchased the machinery for $80,000 and it had an adjusted basis of $53,000 at the time of the exchange.The new machinery had a fair market value of $62,000.Redoubt also received $7,000 of computer equipment in the transaction.What is Redoubt's gain or loss recognized on the exchange?

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

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

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

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

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 on the machine?

Losses on sales between related parties are realized but not recognized.

Explain whether the sale of a machine used in a trade or business that is sold at a loss generates an ordinary or capital loss?

The gain or loss realized on the sale of an asset is the amount realized less the adjusted basis.