) Rogers owns land that is operated as a parking lot. A shed was erected on the lot for the
related transactions with customers. With regard to capital assets and Section 1231 assets, how
should these assets be classified?
Which of the following sales should be reported as a capital gain?
Sale of equipment.
Sale of inventory.
Real property subdivided and sold by a dealer.
Government bonds sold by an individual investor.
Which of the following items is a capital asset?
Real property used in a trade or business.
Accounts receivable for inventory sold.
An automobile for personal use.
Depreciable business property.
4) A heavy equipment dealer would like to trade some business assets in a nontaxable exchange.
Which of the following exchanges would qualify as nontaxable?
A road grader held in inventory for another road grader.
The company jet for a large truck to be used in the corporation.
A corporate office building for a vacant lot.
Investment securities for antiques to be held as investments.
5) A sole proprietor of a farm implement store sold a truck for $15,000 that had been used to
make service calls. The truck cost $30,000 three years ago, and $21,360 depreciation was taken.
What is the appropriate classification of the $6,360 gain for tax purposes?
Section 1231 gain.
6) Lanham, Inc. incurs the following losses on disposition of business assets during the year:
Loss on the abandonment of office equipment
Loss on the sale of a building (straight-line
depreciation taken in prior years of $200,000)
Loss on the sale of delivery trucks
What is the amount and character of the losses to be reported on Lanham’s tax return?
$290,000 Section 1231 loss.
$40,000 Section 1231 loss only.
$40,000 Section 1231 loss, $250,000 long-term capital loss.
$40,000 Section 1231 loss, $50,000 long-term capital loss.
7) A taxpayer sold for $200,000 equipment that had an adjusted basis of $180,000. Through the
date of the sale, the taxpayer had deducted $30,000 of depreciation. Of this amount, $17,000 was
in excess of straight-line depreciation. What amount of gain would be recaptured under Section
1245 (Gain from Dispositions of Certain Depreciable Property)?
8) Four years ago, a self-employed taxpayer purchased office furniture for $30,000. During the
current tax year, the taxpayer sold the furniture for $37,000. At the time of the sale, the
taxpayer’s depreciation deductions totaled $20,700. What part of the gain is taxed as long-term
9) Which of the following transactions or events generates a Section 1231 gain or loss. Assume
all assets are held for more than one year. For each option explain your answer.
Theft of an uninsured diamond engagement ring, with $8,000 basis and a $15,000 FMV.
Gain due to condemnation of land used in a business.
Loss on sale of a warehouse.
Gain of $4,000 on the sale of equipment. Depreciation deductions allowed were $10,000.
10) Lorenzo owns equipment that cost $500,000 and has an adjusted basis of $230,000. If the
straight-line method of depreciation had been used, the adjusted basis would have been
a. What is the maximum selling price that Lorenzo could sell the equipment for without
having to recognize any Section 1245 ordinary income?
b. If he sold the equipment and had to recognize $61,000 of Section 1245 ordinary income,
what was his selling price?
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