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Exam 14: Property Transactions: Capital Gains and Losses, 1231, and Recapture Provisions

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Question 1

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Virgil was leasing an apartment from Marple, Inc. Marple paid Virgil $1,000 to cancel his lease and move out so that Marple could demolish the building. As a result:

A) Virgil has a $1,000 capital gain.
B) Virgil has a $1,000 capital loss.
C) Marple has a $1,000 capital loss.
D) Marple has a $1,000 capital gain.
E) None of the above.

F) A) and C)
G) None of the above

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Question 2

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A business taxpayer sold all the depreciable assets of the business, calculated the gains and losses, and would like to know the final character of those gains and losses. The taxpayer had $353,000 of adjusted gross income before considering the gains and losses from sale of the business assets. The taxpayer had unrecaptured § 1231 lookback loss of $12,000. What is the treatment of the gains and losses summarized in the chart below after all possible netting and reclassification has been completed? What is the taxpayer's adjusted gross income? (Ignore the self­employment tax deduction.) $\begin{array}{lcccc}\text { Asset } & \text { Purchase Date } &\text { Sale Date } & \text { Depreciation Gain (Loss) }\\\text { Machine \#1 } & 10 / 10 / 12 & 11 / 11 / 14 & \$ 323,000 & \$ 66,000 \\\text { Machine \#2 } & 10 / 02 / 11 & 11 / 11 / 14 & 65,000 & (15,000) \\\text { Machine \#3 } & 09 / 23 / 10 & 11 / 11 / 14 & 183,000 & 23,000 \\\text { Machine \#4 } & 09 / 23 / 10 & 11 / 11 / 14 & 28.000 & 34.000\end{array}$

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The taxpayer has adjusted gross income o...

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Question 3

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The tax law requires that capital gains and losses be separated from other types of gains and losses. Among the reasons for this treatment are:

Section 1231 property generally includes certain purchased intangible assets (such as patents and goodwill) that are eligible for amortization and held for more than one year.

A business taxpayer sold all the depreciable assets of the business, calculated the gains and losses, and would like to know the final character of those gains and losses. The taxpayer had $353,000 of adjusted gross income before considering the gains and losses from sale of the business assets. The taxpayer had unrecaptured § 1231 lookback loss of $22,000. What is the treatment of the gains and losses summarized in the chart below after all possible netting and reclassification has been completed? What is the taxpayer's adjusted gross income? (Ignore the self­ employment tax deduction.) $\begin{array}{lcccc}\text { Asset } & \text { Purchase Date } &\text { Sale Date } & \text { Depreciation Gain (Loss) }\\\text { Machine \#1 } & 10 / 10 / 12 & 11 / 11 / 14 & \$ 323,000 & \$ 66,000 \\\text { Machine \#2 } & 10 / 02 / 11 & 11 / 11 / 14 & 65,000 & (15,000) \\\text { Machine \#3 } & 09 / 23 / 10 & 11 / 11 / 14 & 183,000 & 23,000 \\\text { Machine \#4 } & 09 / 23 / 10 & 11 / 11 / 14 & 28.000 & 34.000\end{array}$

Involuntary conversion gains may be deferred if the proceeds of the involuntary conversion are reinvested.

Hilda lent $2,000 to a close personal friend to help the friend avoid overdrawing the friend's checking account. The friend was supposed to repay the $2,000 within a month. Instead, the friend declared personal bankruptcy and Hilda will never recover any of the $2,000. What are the tax implications of these events for Hilda?

Martha is unmarried with one dependent and files as head of household. She had 2014 taxable income of $45,000 which included $16,000 of 0%/15%/20% net long-term capital gain. What is her tax on taxable income using the alternative tax on net long-term capital gain method?

Phil's father died on January 10, 2014. The father had owned stock for 20 years with a basis of $45,000 that was transferred to Phil as a gift on August 10, 2013, when the stock was worth $430,000. His father paid gift tax of $31,000. This stock was worth $566,000 at the date of the father's death. Phil sold the stock for $545,000 net of commissions on February 23, 2014. What is the amount and nature of Phil's gain or loss from disposition of this property?

An individual taxpayer with 2014 net short-term capital loss of $5,000 generally can deduct up to $3,000 for AGI and carry the balance forward to 2015.

If a capital asset is sold at a gain, the holding period is important.

Tan, Inc., sold a forklift on April 12, 2014, for $8,000 (its FMV) to its 100% shareholder, Ashley. Tan's adjusted basis for the forklift was $12,000. Ashley's holding period for the forklift:

Stella purchased vacant land in 2007 that she subdivided for resale as lots. All 10 of the lots were sold during 2014. The lots had a tax basis of $12,000 each and sold for $35,000 each. Stella made no substantial improvements to the lots. She acted as her own real estate broker; so there were no sales expenses for selling the lots. Which of the following statements is correct?

Michael is in the business of creating posters (display art) for the movie industry. He creates a poster and sells it for a lump sum. He has:

Which of the following is correct concerning short sales of stock?

Vertigo, Inc., has a 2014 net § 1231 loss of $64,000 and had a $32,000 net § 1231 gain in 2013. For 2014, Vertigo's net § 1231 loss is treated as:

In 2014, an individual taxpayer has $863,000 of taxable income that includes $48,000 of 0%/15%/20% long-term capital gain. Which of the following statements is correct?

Ranja acquires $200,000 face value corporate bonds for $186,000 when the bonds are issued. He holds the bonds as an investment for two years and then sells them for $198,000. He amortizes $2,000 of the OID. What tax issues does Ranja have with respect to these bonds?

Orange Company had machinery destroyed by a fire on December 23, 2014. The machinery had been acquired on April 1, 2012, for $49,000 and its adjusted basis was $14,200. The machinery was completely destroyed and Orange received $30,000 of insurance proceeds for the machine and did not replace it. This was Orange's only casualty or theft event for the year. As a result of this event, Orange has:

In 2014, Mark has $18,000 short-term capital loss, $7,000 28% gain, and $6,000 0%/15%/20% gain. Which of the statements below is correct?