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Tax Questions 7

c
The general rule regarding the exchanged basis in a like-kind exchange is:
a) The basis is equal to the fair market value of the new property.
b) The basis is equal to the fair market value of the old property.
c) The basis is equal to the adjusted basis of the old property.
d) The basis is equal to the cost basis of the old property.
e) All of these.
b
Brandon, an individual, began business four years ago and has never sold a §1231 asset. Brandon owned each of the assets for several years. In the current year, Brandon sold the following business assets:

Machinery
cost: 30,000
A/D: 7,000
Gain/Loss: 10,000

Computer
cost: 10,000
A/D: 6,000
Gain/Loss: (2,000)

Building
cost: 90,000
A/D: 20,000
Gain/Loss: (2,000)

Assuming Brandon’s marginal ordinary income tax rate is 35 percent, answer the questions for the following alternative scenarios: What effect do the gains and losses have on Brandon’s tax liability?
a) $7,000 ordinary income, $1,000 §1231 loss and $2,100 tax liability.
b) $6,000 ordinary income and $2,100 tax liability.
c) $7,000 §1231 gain and $2,450 tax liability.
d) $7,000 §1231 gain and $1,050 tax liability.
e) None of these.

c
Ashburn reported a $105,000 net §1231 gain in year 6. Assuming Ashburn reported $60,000 of unrecaptured §1231 losses during years 1 – 5, what amount of Ashburn’s net §1231 gain for year 6, if any, is treated as ordinary income?
a) $0.
b) $45,000.
c) $60,000.
d) $105,000.
e) None of these.
a
The sale of land held for investment results in the following type of gain or loss?
a) Capital.
b) Ordinary.
c) §1231.
d) §1245.
e) None of these.
a
Sumner sold equipment that it uses in its business for $30,000. Sumner bought the equipment a few years ago for $80,000 and has claimed $40,000 of depreciation expense. Assuming that this is Sumner’s only disposition during the year, what is the amount and character of Sumner’s gain or loss?

a) $10,000 §1231 loss.
b) $10,000 §1245 loss.
c) $10,000 ordinary loss.
d) $10,000 capital loss.
e) Both $10,000 §1231 loss and $10,000 ordinary loss.

c
What is the primary purpose of a third-party intermediary in a deferred like-kind exchange?
a) To facilitate finding replacement property.
b) To help acquire the replacement property.
c) To prevent the seller from receiving cash (boot) that will taint the transaction.
d) To certify the taxpayer’s Form 8824.
e) All of these.
d
The sale of machinery for more than the original cost basis (before depreciation), used in a trade or business, and held for more than one year results in the following types of gain or loss?
a) Capital and Ordinary.
b) Ordinary only.
c) Capital and §1231.
d) §1245 and §1231.
e) None of these.
b
When does unrecaptured §1250 gains apply?
a) When the taxpayer makes the election.
b) It applies only when non-corporate taxpayers sell depreciable real property at a gain.
c) It applies when §1245 recapture trumps §1250 recapture.
d) It applies only when real property purchased before 1986 is sold at a gain.
e) None of these.
d
Which of the following §s does not currently recapture or recharacterize a taxpayer’s gain?
a) §1239.
b) §1244.
c) §1245.
d) §1250.
e) None of these.
c
Which one of the following is not true regarding a like-kind exchange?
a) Loss on like-kind property is not recognized.
b) Gains on boot given are deferred.
c) Losses on boot given is not recognized.
d) Securities can be like-kind with any other securities.
e) All of these.
c
Which of the following is true regarding the §1231 lookback rule?
a) It only applies when a §1231 loss occurs.
b) It only applies when a §1231 gain occurs.
c) It only applies when a §1231 gain occurs and there is a nonrecaptured §1231 loss in the prior five years.
d) It only applies when a §1231 gain occurs and there is a nonrecaptured §1231 gain in the prior five years.
e) None of these.
b
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?
a) $20,000.
b) $24,000.
c) $36,000.
d) $40,000.
e) None of these.

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