(Test 2) Chapter 8: Property Transactions: Capital gains and Losses, Section 1231, and recapture provisions

Question 1

Sections 1231

Answer 1

Business assets held for more than one year can receive capital gain treatment on gains and ordinary loss treatment on losses. (net gains and losses to determine outcome; outcome not determined until end of year after all are netted)

Question 2

Property included in 1231

Answer 2

1. depreciable or real property used in business
2. property held for the production of income if it has been involuntarily converted.
3. Timber,coal, or domestic iron ore which section 631 applies
4. Livestock held for draft, breeding, dairy, or sporting purposes
5. Unharvested crops on land used in business
6. Certain PURCHASED intangible assets that are eligible;e for amortization

Question 3

Property excluded form 1231

Answer 3

1. Property not held more than one year (not specific crops, but the land those crops are on)
2. Business use property- where casualty losses exceed casualty gains for the taxable year.
3. Inventory and property held primarily for sale to customers
4. Copyrights, literary, musical, or artistic compositions etc, and certain us government publications
5. Accounts receivable;e and notes recievable arising in the ordinary course of the trade or business

Question 4

Casualty or theft and nonpersonal-use capital assets

Answer 4

no effect on the realized gain or loss recognized, merely dictates how a recognized gain will be classified.

Question 5

Casualties and theft are involuntary conversions?

Answer 5

True

Question 6

Step one: (General procedures for 1231 Computation)

Answer 6

casualty netting

Net all recognized long-tern gains and losses from casualties of section 1231 assets and non personal-use capital assets

Question 7

Step two: (General procedures for 1231 Computation)

Answer 7

Section 1231 Netting

After adding any net casualty gain form step 1, net all 1231 gains and losses

Question 8

Step three: (General procedures for 1231 Computation)

Answer 8

1231 look-back provision

The net 1231 gain form step 2 is offset by the non recaptured net 1231 losses for the five preceding taxable years

Question 9

non-recaptured net 1231 losses

Answer 9

losses that have not already been used to offset net 1231 gains

Question 10

Section 1245 (applies primarily to personalty) recapture

Answer 10

applies exclusively to the gain side of 1231. recapture takes part of- or all- of the gain from the sale or exchange of a 1231 asset and classifies it as ordinary income before the netting process of 1231 begins.

Question 11

Section 1245 requires taxpayers to treat all gains as ordinary gain unless the property is sold for more than its original cost?

Answer 11

True

Question 12

The excess of the sales price over the original cost is a?

Answer 12

1231 gain

Question 13

Sections 1245

Answer 13

Merely classifies gain as ordinary income, does not cause gain to be recognized.

Thus, recapture is often referred to as full recapture. any remaining gain after subtracting the amount recaptured as ordinary income will usually be 1231 gain.

Question 14

Section 1245 property

Answer 14

1. amortizable personal property
2. professional baseball and football player contracts
3. expensed costs to remove architectural and transportation barriers that restrict the handicapped or elderly
4. section 179 immediately expensed depreciable tangible personal property
5. Certain depreciable tangible real property employed as an integral part of certain activities such as manufacturing and production
6. pollution control facilities, railroad grading, on the job training facilities, child care facilities on which amortization is taken
7. Single purpose agricultural and horticultural structures and petroleum storage facilities.