CHAPTER 14 PROPERTY TRANSACTIONS: CAPITAL GAINS

1. Lynne owns depreciable residential rental real estate which has accumulated depreciation (all from straight-line) of $65,000. If Lynne sold the property, she would have a $53,000 gain. The initial characterization of the gain would be:

a. Section 1245 gain.

b. Section 1231 gain.

c. Section 1250 gain.

d. Section 1239 gain.

e. None of the above.

2. A retail building used in the business of a sole proprietor is sold on March 10, 2014, for $342,000. The building was acquired in 2004 for $400,000 and straight-line depreciation of $104,000 had been taken on the building. What is the maximumunrecaptured § 1250 gain from the disposition of this building?

a. $400,000.

b. $322,000.

c. $104,000.

d. $26,000.

e. None of the above.

3. Which of the following statements is correct?

a. When depreciable property is gifted to another individual taxpayer, the depreciation recapture potential is extinguished.

b. When depreciable property is inherited by a taxpayer, the depreciation recapture potential is extinguished.

c. When corporate depreciable property is distributed as a dividend, the depreciation recapture potential is generally not recognized.

d. When depreciable property is contributed to charity, the depreciation recapture potential has no effect on the amount of the charitable contribution deduction.

e. All of the above are correct.

4. Which of the following would extinguish the § 1245 recapture potential?

a. An exchange of depreciable business equipment for like-kind business equipment with gain realized, but not recognized.

b. A nontaxable incorporation under § 351.

c. A nontaxable contribution to a partnership under § 721.

d. A nontaxable reorganization.

e. None of the above.

5. Section 1239 (relating to the sale of certain property between related taxpayers) does notapply unless the property:

a. Was depreciated by the transferor.

b. Is depreciable in the hands of the transferee.

c. Is a capital asset.

d. Is real property.

e. None of the above.

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108. An individual has a $40,000 § 1245 gain, a $35,000 § 1231 gain, a $33,000 § 1231 loss, a $3,000 § 1231 lookback loss, and a $15,000 long-term capital gain. The net long-term capital gain is:

a. $30,000.

b. $40,000.

c. $17,000.

d. $15,000.

e. None of the above.

109. An individual has the following recognized gains and losses from disposition of § 1231 assets (all the assets were vacant land): $15,000 gain, $10,000 loss, $25,000 gain, and $2,000 loss. The individual has a $5,500 § 1231 lookback loss. The individual also has a $16,000 net short-term capital loss from the disposition of stock. Which of the following statements is correct?

a. The taxpayer has $5,500 ordinary gain and $6,500 net long-term capital gain.

b. The taxpayer has $12,000 net long-term capital gain.

c. The taxpayer has $28,000 ordinary gain and $16,000 net short-term capital loss.

d. The taxpayer has $5,500 ordinary loss and $6,500 net long-term capital gain.

e. None of the above.

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110. Theresa and Oliver, married filing jointly, and both over 65 years of age, have no dependents. Their 2014 income tax facts are:

Theresa’s wages	$165,000
Oliver’s wages	33,000
Short-term capital gain	36,000
Long-term capital loss What is their taxable income for 2014?	(41,000)

111. Carol had the following transactions during 2014: a painting held for two years and sold at a gain of $85,000; 100 shares of Gray stock held six months and sold for a loss of $6,000; 50 shares of Yellow stock held 18 months and sold for a gain of $36,000. Carol also had $264,000 of taxable income from other sources than these property transactions. What is Carol’s net capital gain or loss and what is her taxable income?

112. On January 10, 2014, Wally sold an option for $2,000 on vacant land he held as an investment. He had purchased the land in 2010 for $76,000. The option allowed the option holder to purchase the property for $122,000 plus the cost of the option. On March 1, 2014, the option holder exercised the option. What is the amount and nature of Wally’s gain or loss from disposition of the land?

113. Willie is the owner of vacant land that he purchased in 2010 for $1,400,000 and held for investment. On January 22, 2013, he was paid $145,000 for a thirteen-month option on the land by Susan. Susan could buy the land for an additional $1,200,000 by exercising the option. Susan had hoped to build a luxury home on the land, but was unable to get approval to build a big enough home to satisfy her needs. Consequently, Susan did notexercise her option and the option expired on February 22, 2014. (1) What is Willie’s basis, gain or loss, and type of gain or loss from these events? (2) What is Susan’s basis, gain or loss, and type of gain or loss from these events?

114. Larry was the holder of a patent on a video game. During 2014, he sold all substantial rights in the patent for $365,000 in cash and a 3% royalty on the purchaser’s first $10,200,000 of sales each year related to the product in which the patent is incorporated. Larry had not reduced the patent to practice. He had a $86,000 basis for the patent. During 2014, he received $30,000 in royalties. What is the nature and amount of Larry’s gain?