Chapter 111. The amount realized is the sale proceeds less the adjusted basis. True False 2. Generally, the amount realized is everything of value received in a sale less selling expenses. True False 3. The adjusted basis is the cost basis less cost recovery deductions. True False 4. An asset's TAX adjusted basis is usually greater than its book adjusted basis. True False 5. The gain or loss realized is the amount realized less the adjusted basis. True False 6. The gain or loss realized is always recognized for TAX purposes. True False 7. All TAX gains and losses are ultimately characterized as either ordinary or capital. True False 8. Ordinary gains and losses are obtained on the sale OF INVESTMENTS . True False 9. Accounts receivable and inventory are examples of ordinary assets. True False 10. Assets held for INVESTMENT assets. and personal use assets are examples of capital True False 11. §1231 assets include all assets used in a trade or business. True False 12. A parcel of land is always a capital asset. True False 13. Taxpayers can recognize a taxable gain even though an asset's real economic value has declined. True False 14. After application of the look-back rule, net §1231 gains become capital while net §1231 losses become ordinary. True False 15. Depreciation recapture changes both the amount and character of a gain. True False 16. Only accelerated depreciation is recaptured for §1245 assets. True False 17. §1250 recaptures the excess of accelerated depreciation over straight line depreciation on real property placed in service between 1981 and 1986 as ordinary INCOME . True False 18. For corporations, §291 recaptures 20 percent of the lesser of depreciation taken or the realized gain as ordinary income. True False 19. Unrecaptured §1250 gain is TAXED AT a maximum rate of 25 percent. True False 20. Unrecaptured §1250 gains apply only to individuals. True False 21. §1239 recharacterizes 50 percent of the gain on sales to a related party as ordinary income. True False True False . A simultaneous exchange must take place for a transaction to qualify as a like-kind exchange. True False 29. 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. The §1231 look-back rule recharacterizes §1231 gains if §1231 losses have created ordinary losses in the last 5 years. For a like-kind exchange. realized gain is deferred if the exchange is solely for likekind property. A net §1231 gain becomes ordinary while a net §1231 loss becomes long-term capital gain. True False 28. True False 23. Boot is not like-kind property involved in a like-kind exchange. True False 24.22. True False 31. True False 26. True False 25. Residential real property is not like-kind with non-residential real property. The §1231 look-back rule applies whether there is a net gain or loss. True False 30. Realized gains are recognized unless there is specific exception. 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 27. B. True False 33. Adjusted basis is cost basis less cost recovery deductions. Fair market value of other property received. Which of the following is not true regarding an asset's adjusted basis? A. C. Which of the following is not used in the calculation of the amount realized? A. E. 37. True False Multiple Choice Questions 36. An INSTALLMENT sale is any sale where at least a portion of the sales proceeds is recognized in a subsequent taxable year. C. B. the gross profit percentage is the gain recognized True False 35. Losses on sales between related parties are realized but not recognized. Cash. sale. TAX adjusted basis is usually greater than book adjusted basis.32. TAX adjusted basis is usually less than book adjusted basis. Adjusted basis. . For an INSTALLMENT divided by the gain realized. Buyer's assumption of liabilities. All of these. D. True False 34. A loss realized for property destroyed in a hurricane is deferred under the involuntary conversion rules. Which of the following realized gains results in a recognized gain? A. C. Amount realized less adjusted basis. Sale to a related party. Iowa cropland exchanged for a Minnesota warehouse. Which of the following is how gain or loss realized is calculated? A. Farm machinery traded for farm machinery. B. None of these 39. Leesburg sold a machine for $2. E. Cost basis less cost recovery. C. Shipping costs D. Cash less cost recovery. Involuntary conversion.600. None of these. D. Sales TAX C. D. 40. 41. Purchase price B. Cash less selling costs. 38. TAX adjusted basis may change over time.200 on November 10th of the current year. Which of the following is not usually included in an asset's TAX basis? A. B.D. INSTALLATION costs E. The machine was purchased for $2. Leesburg had taken $1.200 of depreciation . None of these. 43. §1245. D. §1231.000 gain. E. $1. 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. 44. $800 gain. E. §1231. $1.200 loss. D. C. Capital. B. §1245.400 loss. §291. The sale of COMPUTER equipment used in a trade or business for 9 months . What is Leesburg's gain or loss realized on the machine? A. B. C. The sale of land held for INVESTMENT loss? results in the following type of gain or A. B. None of these. $1. D. Ordinary. None of these. 42. E. C.deductions on the machine through the date of the sale. Capital. C. B. §1231. Which of the following results in an ordinary gain or loss? A. Sale of a machine at a gain. B. §1245.results in the following type of gain or loss? A. None of these. Sale of stock held for INVESTMENT . 46. B. Capital. Sale of inventory. None of these. Capital and §1231. C. and held for more than one year results in the following types of gain or loss? A. §1245 and §1231. 47. D. Ordinary. D. What is the character of land used in an active trade or business for two years? . used in a trade or business. Capital and Ordinary. The sale of machinery for more than the original cost basis (before depreciation). Ordinary only. E. E. C. 45. E. Sale of a §1231 asset. D. None of these. §1231. Ordinary. Investment. B. Sale of inventory. 49. 50. Sale of equipment where the gain realized exceeds the accumulated depreciation. Which of the following is true regarding depreciation recapture? A. None of these.A. . E. B. E. Which of the following is not a §1245 asset if held for more than one year? A. None of these. None of these. C. Changes the character of a gain. Sale of equipment where the accumulated depreciation exceeds the gain realized. Changes the amount of a gain. 48. B. Machinery. D. Capital. C. E. Automobile. Which of the following gains does not result solely in an ordinary gain or loss? A. Only applies to ordinary assets. B. C. Sale of equipment held for less than a year. D. D. Changes the character of a loss. Which of the following does not ultimately result in a capital gain or loss? A.500 of depreciation expense on the machine. .500 §1250.500 §1221. $9. D. None of these. $9. B. B. Gain on equipment used in a trade or business held for more than one year.500.000 several years ago and has claimed $12. if it is the only asset sale during the year. $9. What is the amount and character of Foreaker's gain? A. Foreaker LLC sold a piece of land that it uses in its business for $52. Sale of a personal use asset. Butte bought the machine for $55.500 §1231 loss. Building purchased in 1985 for which accelerated depreciation was elected. Foreaker bought the land two years ago for $42. Land.C. C. Butte sold a machine to a machine dealer for $50. None of these. None of these. E. Sale of inventory. $7. D. C. $9. E.500 §1245.500 §1231. 53. D.000. 52. 51.000. What is the amount and character of Butte's gain or loss? A. Sale of capital stock in another company. E. D. E. $7. B. D. $5. C. §291. §1245.B. Which of the following sections recaptures or recharacterizes only corporate taxpayer's gains? A. $7. C. Unrecaptured §1250 gains. §291. None of these. C. E. B. §1245.500 ordinary gain. . Sale of machinery held for less than one year. 54. 56. Which of the following sections does not recapture or recharacterize a taxpayer's gain? A. E.000 §1231 loss. Sale of machinery held for more than one year and where the gain realized exceeds the accumulated depreciation. None of these. B. D. 55. §1239. §1239.500 capital gain. Which of the following transactions results solely in §1245 gain? A. §1244. None of these. E. What is the amount and character of Bateman's gain or loss? . D.000 capital loss. Sumner bought the equipment a few years ago for $80. Sumner sold equipment that it uses in its business for $30. 58. Sale of land held for more than one year and where the amount realized exceeds the adjusted basis. 59. $10. What is the amount and character of Bozeman's gain or loss? A. what is the amount and character of Sumner's gain or loss? A.000 ordinary gain.000 and has claimed $20. D. 57. $10.C. C. $50.000 §1231 gain. None of these.000 and has claimed $40. C. and $20. B. and $5.000. $25.000 §1231 loss. Bozeman bought the equipment two years ago for $75.000 of depreciation expense. $10.000 §1231 gain. Sale of machinery held for more than one year and where the accumulated depreciation exceeds the gain realized.000 and has claimed $200. E. $5. Bateman bought the building ten years ago for $600. Bateman Corporation sold an office building that it used in its business for $800. E.000 §1231 gain. Bozeman sold equipment that it uses in its business for $80.000 §1245 loss. $25.000.000. Assuming that this is Sumner's only disposition during the year.000 ordinary loss.000 of depreciation expense.000 ordinary gain. None of these. D.000 capital gain. $20. B. None of these.000 of depreciation expense. $200.000 §1231 gain. The TAX REFORM ACT the straight-line method. $400. C. E. Congress repealed the code section.000 ordinary gain.000 and has claimed $50.000 ordinary gain. B. of 1986 changed the depreciation of real property to C.000 ordinary and $50.A. Brad sold a rental house that he owned for $250. None of these. What is the amount and character of Brad's gain or loss? A. E. D.000 ordinary and $200. D.000 unrecaptured §1250 gain.000 capital gain. Brad bought the rental house five years ago for $225.000 §1231 gain and $50. Because unrecaptured §1250 gains now apply to all taxpayers instead. B. 60. E. $75. $40.000 ordinary and $360.000 §1231 gain.000 unrecaptured §1250 gain. $25. D. 61. $400. Why does §1250 recapture generally no longer apply? A. $75. §1245 recapture trumps §1250 recapture. None of these. When does unrecaptured §1250 gains apply? . None of these. B. C. $25.000 of depreciation expense. 62.000.000 capital gain. 000 of depreciation expense. Brandon owned each of the assets for several years. $7.000 §1231 loss and $2. for $40. It applies only when non-corporate taxpayers sell depreciable real property at a gain.100 TAX B. $1.000 §1231 gain. $20. D. When the taxpayer makes the election.000 ordinary income. which it used in its business. None of these. E. B. What is the amount and character of Alpha's gain? A. None of these. began business four years ago and has never sold a §1231 asset. It applies only when real property purchased before 1986 is sold at a gain.A. B. It applies when §1245 recapture trumps §1250 recapture. liability. $10. Alpha sold machinery. Beta used the machinery in its business. what effect do the gains and losses have on Brandon's TAX liability? A. to Beta. Alpha bought the equipment a few years ago for $50.000 ordinary gain and $10. C.000 ordinary income and $2. an individual. $7.100 TAX C. liability. C. In the current year. E.000 and has claimed $30. a related entity.450 tax liability. 64.000 capital gain. $6.000. 63. Brandon. $20.000 ordinary gain.000 ordinary INCOME under §1239.000 §1231 gain and $2. Brandon sold the following business assets: Assuming Brandon's marginal ordinary INCOME TAX rate is 35 percent. $20. D. . $13. D. is treated as ordinary income? A.000. proceeds $4.000 cost basis. an individual. E. and $6.000.000. Brandon sold the following business assets: Assuming Brandon's marginal ordinary INCOME TAX rate is 35 percent.000. and $6.000 depreciation. $15. $8. $12. $25. began business four years ago and has sold §1231 assets with $5.000. C. what amount of Ashburn's net §1231 gain for year 6.000 §1231 gain. None of these. 67.050 tax liability. $13. (2) machinery. $0.000 depreciation.000 §1231 gain and $1. $25. None of these. Ashburn reported a $105.000 cost basis. D. 66. $105. Winchester LLC sold the following business assets during the current year: (1) automobile.000 ordinary INCOME . $60. if any.150 tax liability. (3) furniture. liability. Assuming Ashburn reported $60.000 of losses within the last 5 years. what effect do the gains and losses have on Brandon's TAX liability? A.000 ordinary income. B. C.D.000 depreciation.000 §1231 gain. $12. E.000 §1231 gain and $3.000 cost basis. $10. $25.000 net §1231 gain in year 6. $30.750 TAX B.350 tax liability. Brandon owned each of the assets for several years. proceeds $10. $7. E. Brandon. 65. (4) COMPUTER equipment. $12. proceeds $20.000 .000 ordinary income. None of these. $45.000 of nonrecaptured §1231 losses during years 1-5.750 TAX liability. $20. $25. In the current year.000. It only applies when a §1231 gain occurs. $10. It only applies to gains on sales of depreciable property. (5) Winchester had unrecaptured §1231 losses of $3. $3. It only applies to gains on sales of non-residential real property. B. C. 69. Which of the following is true regarding the §1231 look-back rule? A. B. C. It only applies when a §1231 gain occurs and there is a nonrecaptured §1231 gain in the prior five years. It only applies when a §1231 gain occurs and there is a nonrecaptured §1231 loss in the prior five years. None of these.000 §1231 loss. C.000 depreciation.000 ordinary gain. E. $7.000 ordinary loss. $6.000 ordinary gain. $4. proceeds $10. D. 68. . Which of the following is not true regarding §1239? A. $4.000 in the prior 5 years.000 §1231 gain. E.000 ordinary loss. $0 §1231 loss.000. What is the amount and character of Winchester's gains and losses before the 1231 netting process? A. D. E. None of these.cost basis. D. It only applies to related taxpayers. B. It only applies when a §1231 loss occurs.000 §1231 loss. $1. $7. It does not apply to losses. None of these. D. Koch traded machine 1 for machine 2. C.000 and machine 2's adjusted basis was $55. $75.000. $36.000 at the time of the exchange. Mary traded FURNITURE used in her business to a furniture dealer for some new furniture.000. Other property. Mary originally purchased the furniture for $45. CASH .000.000.000. C. B. Koch originally purchased machine 1 for $75. $20. D.000 and machine 1's adjusted basis was $40. E. B. Mary also gave $4. MORTGAGE received. C. MORTGAGE given. What is Mary's adjusted basis in the new furniture after the exchange? A. B. $40. 72. The new furniture had a fair market value of $40.70.000. $50. None of these. Machine 2's seller purchased it for $65. $55.000 at the time of the exchange.000. D.000 to the dealer in the transaction. None of these.000. . E. $40. Which one of the following is not considered boot in a like-kind exchange? A. 71. $24.000.000 at the time of the exchange.000 and it had an adjusted basis of $20. What is Koch's adjusted basis in machine 2 after the exchange? A. D. All of these. The exchange must be completed within the taxable year. How long does a taxpayer have to identify replacement property in a like-kind exchange? A. Which one of the following is not a requirement of a deferred like-kind exchange? A. All of these. 75. Which one of the following is not true regarding a like-kind exchange? A. 74. C. E. The like-kind property to be received must be identified within 180 days. All of these. B. A third party intermediary is often used to facilitate the exchange. There is no deadline for the identification of replacement property. All of these. C. D. B. The like-kind property must be received within 180 days. Gains on boot given are deferred. C. SECURITIES can be like-kind with any other securities. 73. E. D. E. The like-kind property to be received must be identified within 45 days. Losses on boot given are not recognized.E. Loss on like-kind property is not recognized. 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. . The like-kind property to be received must be identified within 45 days. 000.000. All of these. The basis is equal to the fair market value of the new property. The new machinery had a fair market value of $35. Arlington also received $2. The general rule regarding the exchanged basis in a like-kind exchange is: A. D. C. $2.000 of office equipment in the transaction. .000. The basis is equal to the adjusted basis of the old property.000 and it had an adjusted basis of $28.000. B. D. To facilitate finding replacement property. 77. D. Arlington LLC traded machinery used in its business to a machinery dealer for some new machinery. $9. C. The basis is equal to the cost basis of the old property.000 at the time of the exchange.76. B. Arlington originally purchased the machinery for $60. To certify the taxpayer's Form 8824. C. 78. To help acquire the replacement property. To prevent the seller from receiving CASH (boot) that will taint the transaction. E. $0. What is Arlington's gain or loss recognized on the exchange? A. E. What is the primary purpose of a third-party intermediary in a deferred like-kind exchange? A. B. $7. All of these. The basis is equal to the fair market value of the old property. E. An indirect involuntary conversion occurs when property is destroyed and insurance proceeds are used to purchase qualified replacement property.E. A direct involuntary conversion occurs when property taken under imminent domain is replaced with other property. Which of the following is not an involuntary conversion? A. 80. D. Qualified replacement property rules are more restrictive than the like-kind property rules. Destruction caused by a hurricane. E. B. Which of the following may qualify as an INSTALLMENT A. 81. E. Land sold at a loss. Sale of SECURITIES . 79. C. Sale of inventory at a gain. All of these are true. C. All of these are involuntary conversions. Imminent domain. All of these are true. Sale of asset used in a business at a gain. A foreclosure. sale? . Fire damage. D. None of these. Losses realized in involuntary conversions are deferred. B. D. C. Each of the following is true except for: A. B. The related person always receives a carryover basis.000 in CASH in the current year and a note providing Pelosi with $150. None of these. The gross profit percentage is needed to determine the annual gain recognized. B. 84. The tax laws essentially treat related parties as the same taxpayer. Which of the following is true regarding disallowed losses between related taxpayers? A. $0. C. The holding period of the related person begins over.000. D. Stock sales are ineligible for installment sale treatment.000. D. $10.000 in the subsequent year. E. C.000. $50. $50.000.000.82. C. Its basis in the land was $250. D. E. The seller's realized loss is deferred until the buyer sells the assets. B. $25. For the land. respectively? A.000.000. E. None of these. $0. $40. None of these. Depreciation recapture is deferred in an installment sale. What is Pelosi's recognized gain in the current and subsequent year. .000. $25. Only gains are eligible for installment sale reporting. 83. Pelosi Corporation sold a parcel of land valued at $300. Which of the following is not true regarding INSTALLMENT sales? A. Pelosi received $150. B. $100 short-term capital gain. $100 long-term capital gain. E. Sadie sold 10 shares of stock to her brother.85. Sadie had purchased the stock for $600 two years earlier. $0. George. If George sells the stock for $700. C. B. D. what is the amount and character of his recognized gain or loss in the current year? A. None of these. . $200 short-term capital gain. for $500 six months ago.