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

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Question 81

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Spencer has an investment in two parcels of vacant land. Parcel 1 is a capital asset and parcel 2 is a § 1231 asset. Spencer already has a short-term capital loss for the year that he would like to offset with capital gain. He has a § 1231 lookback loss that exceeds the gain from the disposition of either land parcel. Spencer wants to sell only one land parcel: each of them would yield the same amount of gain. The gain that would be recognized exceeds the short-term capital loss Spencer already has. Which of the following statements is correct?

A) Spencer will have a net capital loss no matter which land parcel he sells.
B) Spencer will have a net capital loss if he sells parcel 2.
C) Spencer will have a net capital loss if he sells parcel 1.
D) Spencer will have a net capital gain if he sells either parcel 1 or parcel 2.
E) None of these.

F) A) and B)
G) A) and C)

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Question 82

True/False

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Personal use property casualty gains and losses are not subject to the § 1231 rules.

A) True
B) False

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Question 83

Multiple Choice

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Emilio owns vacant land he is holding for investment. Two years ago he granted an option to purchase the land. The option grantee paid $25,000 for the option. This year the option expired unexercised. As a result, Emilio has:

When a patent is transferred, the most common forms of payment received by the transferor are a lump sum and/or a periodic payment.

Which of the following is correct concerning short sales of stock at the time the short sale is made?

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

Which of the following assets held by a manufacturing business is a § 1231 asset?

An individual taxpayer with 2019 net short-term capital loss of $5,000 generally can deduct up to $3,000 for AGI and carry the balance forward to 2020.

May an individual who has purchased a patent be a holder of that patent?

Martha is unmarried with one dependent and files as head of household. She had 2019 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?

Sharon has the following results of netting her short-term and long-term capital gains and losses for 2019: $56,000 short-term capital loss and $82,000 net long-term capital gain ($21,000 0%/15%/20% long-term capital gain and $61,000 25% long-term capital gain). a. What is her net capital gain or loss for 2019? b. If there is a net capital loss, how much and what type of the loss carries over to 2020? c. If there is a net long-term capital gain, what is it made up of?

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

A business taxpayer sold all 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 following table after all possible netting and reclassification have been completed? What is the taxpayer's adjusted gross income? (Ignore the self- employment tax deduction.) $\begin{array} { l c c c c } \text { Asset } & \text { Purchase Date } & \text { Sale Date } & \text { Depreciation } & \text { Gain (Loss) } \\\text { Machine 1 } & 10 / 10 / 17 & 11 / 11 / 19 & \$ 323,000 & \$ 66,000 \\\text { Machine 2 } & 10 / 02 / 17 & 11 / 11 / 19 & 65,000 & ( 15,000 ) \\\text { Machine 3 } & 09 / 23 / 15 & 11 / 11 / 19 & 183,000 & 23,000 \\\text { Machine 4 } & 09 / 23 / 15 & 11 / 11 / 19 & 28,000 & 64,000\end{array}$

Rental use depreciable machinery held more than 12 months is an example of a § 1231 asset.

Tom has owned 40 shares of Orange Corporation stock for five years. He sells the stock short for a total of $1,100. One month later, he closes the short sale by purchasing and delivering 40 shares of Orange Corporation stock for a total of $600. Tom has a $500 short-term capital gain.

Vanna owned an office building that had been held more than one year when it was sold for $567,000. The real estate had an adjusted basis of $45,000 for the land and $233,000 for the building. Straight-line depreciation of $162,000 had been taken on the building. What are the amount and initial character of the gain or loss from disposition of the real estate? Is any of the gain unrecaptured § 1250 (25%) gain?