The sale of machinery for more than the original cost basis (before depreciation), used in a trade or business,

and held for Carlos transfers property with a tax basis of $500 and a fair market value of $800 to a corporation in exchange for stock with
more than one year results in the following types of gain or loss? a fair market value of $650 and $50 in cash in a transaction that qualifies for deferral under section 351. The corporation
-§1245 and §1231. assumed a liability of $100 on the property transferred. What is the CORPORATION'S TAX BASIS in the property received in
Which of the following results in an ordinary gain or loss? the exchange?
-Sale of inventory. -$550 - WHY: Tax basis of property rec plus cash given
Which of the following is true regarding depreciation recapture? Roy transfers property with a tax basis of $800 and a fair market value of $500 to a corporation in exchange for stock with a
-Changes the character of a gain. fair market value of $400 and $50 in cash in a transaction that qualifies for deferral under §351. The corporation assumed a
Which of the following gains does not result solely in an ordinary gain or loss? liability of $50 on the property transferred. What is Roy's tax basis in the stock received in the exchange?
- Sale of equipment where the gain realized exceeds the accumulated depreciation. -$700 explanation: The shareholder's tax basis equals his tax basis in the property transferred of $800 (a substituted
Which of the following is not a §1245 asset if held for more than one year? basis) less the $50 liability assumed by the corporation less the fair market value of boot received. If Roy sells the stock
-Land for $400, the loss recognized will be $300, an amount equal to the loss deferred of $300.
Which of the following does not ultimately result in a capital gain or loss? Casey transfers property with a tax basis of $2,000 and a fair market value of $5,000 to a corporation in exchange for stock
-Sale of Inventory with a fair market value of $4,000 and $400 in cash in a transaction that qualifies for deferral under section 351. The
Foreaker LLC sold a piece of land that it uses in its business for $52,000. Foreaker bought the land two years ago for corporation assumed a liability of $600 on the property transferred. Casey also incurred selling expenses of $300. What is
$42,500. What is the amount and character of Foreaker's gain? the amount realized by Casey in the exchange?
-$9,500 §1231. -$4,700 explanation: $4,000 fair market value of the stock received plus $400 cash received plus $600 mortgage assumed
Which of the following sections does not recapture or recharacterize a taxpayer's gain? §1239, §1250, §1245 or §291. less $300 selling expenses.
-None of the choices are correct. Tristan transfers property with a tax basis of $900 and a fair market value of $1,200 to a corporation in echange for stock
Which of the following sections recaptures or recharacterizes only corporate taxpayer's gains? with a fair market value of $900 and $200 in cash in a transaction that qualifies for deferral under section 351. The
-§291. corporation assumed a liability of $100 on the property transferred. What is the corporation's tax basis in the property
Which of the following transactions results solely in §1245 gain? received in the exchange?
-Sale of machinery held for more than one year and where the accumulated depreciation exceeds the gain realized. -$1,100 explanation: The corporation's basis in the property equals Tristan's tax basis of $900 (a carryover basis) plus gain
Sumner sold equipment that it uses in its business for $30,000. Sumner bought the equipment a few years ago for $80,000 recognized by Tristan of $200 (the lesser of the gain realized or the boot received). If the corporation sells the property
and has claimed $40,000 of depreciation expense. Assuming that this is Sumner's only disposition during the year, what is for $1,200, it will recognize a gain of $100, an amount equal to the gain deferred on the transfer.
the amount and character of Sumner's gain or loss? Sybil transfers property with a tax basis of $5,000 and a fair market value of $6,000 to a corporation in exchange for stock
-$10,000 §1231 loss. with a fair market value of $3,000 and $2,000 in cash in a transaction that qualifies for deferral under §351. The corporation
Brad sold a rental house that he owned for $250,000. Brad bought the rental house five years ago for $225,000 and has assumed a liability of $1,000 on the property transferred. What is Sybil's tax basis in the stock received in the exchange?
claimed $50,000 of depreciation expense. What is the amount and character of Brad's gain or loss? -$3,000 explanation: The shareholder's tax basis equals her tax basis in the property transferred of $5,000 (a substituted
-$25,000 §1231 gain and $50,000 unrecaptured §1250 gain. basis) plus gain recognized of $1,000 less boot received of $2,000 less the $1,000 liability assumed by the corporation. If
Why does §1250 recapture generally no longer apply? Sybil sells the stock for $3,000, no gain or loss will be realized.
-Real property is depreciated using the straight-line method after 1986. Ashley transfers property with a tax basis of $5,000 and a fair market value of $3,000 to a corporation in exchange for stock
When does unrecaptured §1250 gains apply? with a fair market value of $2,000 and $500 in cash in a transaction that qualifies for deferral under section 351. The
-It applies only when non-corporate taxpayers sell depreciable real property at a gain. corporation assumed a liability of $500 on the property transferred. What is Ashley's tax basis in the stock received in the
Alpha sold machinery, which it used in its business, to Beta, a related entity, for $40,000. Beta used the machinery in its exchange?
business. Alpha bought the machinery a few years ago for $50,000 and has claimed $30,000 of depreciation expense. What - $4,000 explanation: The shareholder's tax basis equals her tax basis in the property transferred of $5,000 (a substituted
is the amount and character of Alpha's gain? basis) less boot received of $500 less the $500 liability assumed by the corporation. If Ashley sells the stock for $2,000, a
- $20,000 ordinary income under §1239. $2,000 loss will be recognized, an amount equal to the loss deferred of $2,000.
Ashburn reported a $105,000 net §1231 gain in year 6. Assuming Ashburn reported $60,000 of nonrecaptured §1231 losses Rachelle transfers property with a tax basis of $800 and a fair market value of $900 to a corporation in exchange for stock
during years 1-5, what amount of Ashburn's net §1231 gain for year 6, if any, is treated as ordinary income? with a fair market value of $750 and $50 in cash in a transaction that qualifies for deferral under section 351. The
-$60000 corporation assumed a liability of $100 on the property transferred. What is the corporation's tax basis in the property
Winchester LLC sold the following business assets during the current year: received in the exchange?
(1) automobile, $30,000 cost basis, $12,000 depreciation, proceeds $20,000; (2) machinery, $25,000 cost basis, $20,000 -$850 explanation: The corporation's tax basis equals the shareholder's tax basis in the property transferred of $800 (a
depreciation, proceeds $10,000; (3) furniture, $15,000 cost basis, $10,000 depreciation, proceeds $4,000; carryover basis) plus gain recognized by Rachelle of $50 (the lesser of the gain realized or the boot received). If the
(4) computer equipment, $25,000 cost basis, $6,000 depreciation, proceeds $10,000; (5) Winchester had unrecaptured corporation sells the property for $900, the gain recognized will be $50.
§1231 losses of $3,000 in the prior 5 years. What is the amount and character of Winchester's gains and losses before the Which of the following statements best describes the concept of control as it applies to a §351 transaction?
1231 netting process? Assume all assets were held for more than one year. -Control is defined as the ownership of 80 percent or more of a corporation's voting stock and 80 percent or more of the
-$7,000 ordinary gain, $10,000 §1231 loss. Explanation: All of the assets are §1231 assets: automobile $2,000 gain, total number of shares of each class of nonvoting stock.
machinery $5,000 gain, furniture $1,000 loss, and equipment $9,000 loss. The gains on the automobile and machinery are Which of the following statements best describes the impact of receiving boot in a §351 transaction?
characterized as ordinary income to the extent the gains were created by depreciation deductions. This results in $7,000 -Boot received causes gain realized to be recognized, but not loss realized.
ordinary gain and $10,000 §1231 loss. The §1231 look-back rule only applies when there is a net 1231 gain. Sami transferred property with a fair market value of $600 and a tax basis of $300 to a corporation in exchange for stock
Which of the following is true regarding the §1231 look-back rule? with a fair market value of $600. In addition, Sami received stock with a fair market value of $50 in exchange for services she
-It only applies when a §1231 gain occurs and there is a nonrecaptured §1231 gain in the prior five years. provided to the corporation in the incorporation process. Which of the following statements best describes the tax result to
Which of the following is not true regarding §1239? Sami because of the exchanges?
-It only applies to gains on sales of non-residential real property. -Sami will recognize $50 of compensation income, but she can count the shares of stock she receives in exchange for
Koch traded machine 1 for machine 2 when the fair market value of both machines was $50,000. Koch originally purchased services in determining if the control test is met under §351. explanation: Sami recognizes $50 of income from services
machine 1 for $75,000 and machine 1's adjusted basis was $40,000 at the time of the exchange. Machine 2's seller because services are not considered property under §351. She can count the stock she receives for the services in
purchased it for $65,000 and machine 2's adjusted basis was $55,000 at the time of the exchange. What is Koch's adjusted determining if the control test is met because the value of the stock received in exchange for property is greater than 10
basis in machine 2 after the exchange? percent of the value of the services rendered.
-$50,000 Amy transfers property with a tax basis of $900 and a fair market value of $600 to a corporation in exchange for stock with a
Mary exchanged an office building used in her business for some land. Mary originally purchased the building for $45,000 fair market value of $450 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of
and it had an adjusted basis of $20,000 at the time of the exchange. The land had a fair market value of $40,000. Mary also $150 on the property transferred. What is Amy's tax basis in the stock received in the exchange?
gave $4,000 to the in the transaction. What is Mary's adjusted basis in the land after the exchange? -$750 explanation: The shareholder's tax basis equals her tax basis in the property transferred (a substituted basis) less
-$24,000 any liability assumed by the corporation. If Amy sells the stock for $450, the loss recognized will be $300, an amount
Which one of the following is not considered boot in a like-kind exchange? equal to the loss deferred of $300.
- Mortgage received. Which of the following statements best describes the "built-in loss" rules that apply to property transferred to a corporation
Which one of the following is not true regarding a like-kind exchange? under §351?
-Losses on boot given are not recognized. -If the aggregate basis of all property transferred to a corporation under §351 exceeds its aggregate fair market value, the
Which one of the following is not a requirement of a deferred like-kind exchange? aggregate tax basis of the property in the hands of the corporation cannot exceed the aggregate fair market value of the
-The exchange must be completed within the taxable year. property.
How long after the initial exchange does a taxpayer have to identify replacement property in a like-kind exchange? Which of the following statements best describes the tax consequences that arise from a contribution of capital to a
-The like-kind property to be received must be identified within 45 days. corporation by an existing sole shareholder?
The general rule regarding the exchanged basis in the new property received in a like-kind exchange is: -The shareholder does not recognize a gain or loss on the transfer, and the corporation's basis in the property transferred
-The basis is equal to the adjusted basis of the old property. equals the shareholder's basis in the property transferred.
What is the primary purpose of a third-party intermediary in a deferred like-kind exchange? Which of the following statements best describes the tax benefits that arise from the sale of §1244 stock?
-To prevent the seller from receiving cash (boot) that will taint the transaction. -§1244 allows an individual shareholder to deduct up to $50,000 of the loss from sale of the stock as an ordinary loss in
Arlington LLC exchanged land used in its business for some new land. Arlington originally purchased the land for $28,000. the year of the sale.
The new land had a fair market value of $35,000. Arlington also received $2,000 of office equipment in the transaction. Which of the following statements does not describe a tax consequence to shareholders in a complete liquidation?
What is Arlington's gain or loss recognized on the exchange? -All complete liquidations are taxable to the shareholders.
-$2,000 Jalen transferred his 10 percent interest to Wolverine Company as part of a complete liquidation of the company. In the
Each of the following is true except for: exchange, he received land with a fair market value of $100,000. Jalen's basis in the Wolverine stock was $50,000. The land
-losses realized in involuntary conversions are deferred. had a basis to Wolverine Company of $80,000. What amount of gain does Jalen recognize in the exchange and what is his
Which of the following may qualify as an installment sale? basis in the land he receives?
-Sale of asset used in a business at a gain. -$50,000 gain recognized and a basis in the land of $100,000
Red Blossom Corporation transferred its 40 percent interest to Tea Company as part of a complete liquidation of the
Which of the following amounts is not included in the computation of a property's adjusted tax basis in an exchange? company. In the exchange, Red Blossom received land with a fair market value of $500,000. The corporation's basis in the
- adjusted tax basis of property transferred Tea Company stock was $300,000. The land had a basis to Tea Company of $600,000. What amount of gain does Red
Which of the following amounts is not included in the computation of a property's adjusted tax basis in an exchange? Blossom recognize in the exchange and what is its basis in the land it receives?
-Selling expenses incurred by the buyer -$200,000 gain recognized and a basis in the land of $500,000
Which of the following statements best describes the tax law approach to recognizing gain or loss realized in an exchange? Paladin Corporation transferred its 90 percent interest to Furman Company as part of a complete liquidation of the
-Gain or loss realized is recognized unless specifically stated otherwise in the Internal Revenue Code. company. In the exchange, Paladin received land with a fair market value of $1,000,000. The corporation's basis in the
Which of the following statements about §351 transactions is false? Furman Company stock was $400,000. The land had a basis to Furman Company of $200,000. What amount of gain does
-A transferor of property must receive stock equal to at least 80 percent of the fair value of the property transferred. Paladin recognize in the exchange and what is its basis in the land it receives?
Roberta transfers property with a tax basis of $400 and a fair market value of $500 to a corporation in exchange for stock -No gain recognized and a basis in the land of $200,000
with a fair market value of $350 in a transaction that qualifies for deferral under section 351. The corporation assumed a Katarina transferred her 10 percent interest to Spartan Company as part of a complete liquidation of the company. In the
liability of $150 on the property transferred. What is the amount realized by ROBERTA in the exchange? exchange, she received land with a fair market value of $200,000. Katarina's basis in the Spartan stock was $100,000. The
-$500 explanation: $350 fair market value of the stock received plus $150 from the liability assumed by the corporation. land had a basis to Spartan Company of $50,000. What amount of gain does Spartan recognize in the exchange and what is
Inez transfers property with a tax basis of $200 and a fair market value of $300 to a corporation in exchange for stock with a Katarina's basis in the land she receives?
fair market value of $250 in a transaction that qualifies for deferral under §351. The corporation assumed a liability of $50 -$150,000 gain recognized by Spartan and a basis in the land of $200,000 to Katarina
on the property transferred. What is the CORPORATION'S TAX BASIS in the property received in the exchange?
-$200 Why: FMV minus liability
Antoine transfers property with a tax basis of $500 and a fair market value of $600 to a corporation in exchange for stock
with a fair market value of $550 in a transaction that qualifies for deferral under section 351. The corporation assumed a
liability of $50 on the property transferred. What is ANTOINES'S TAX BASIS in the stock received in the exchange?
-$450 - WHY: FMV minus Liability assumed by Corp.
Camille transfers property with a tax basis of $800 and a fair market value of $1,200 to a corporation in exchange for stock
with a fair market value of $850 and $350 in cash in a transaction that qualifies for deferral under section 351. Camille also
incurred selling expenses of $100. What is the AMOUNT REALIZED by CAMILLE in the exchange?
-$1,100 - WHY : FMV - Selling Expenses