In year 0, Longworth Partnership purchased a machine for $56,000 to use in its business. In year 3, Longworth sold the machine for $36,700. Between the date of the purchase and the date of the sale, Longworth depreciated the machine by $29,800. (Loss amounts should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.)

  1. What is the amount and character of the gain or loss Longworth will recognize on the sale?

 

Description                                          Amount

Total Gain/(Loss) Recognized

Character of Recognized Gain (Loss)

Ordinary Gain/(Loss)

1231 Gain/Loss

 

  1. What is the amount and character of the gain or loss Longworth will recognize on the sale if the sale proceeds are increased to $61,250?

 

 

Description                                          Amount

Total Gain/(Loss) Recognized

Character of Recognized Gain (Loss)

Ordinary Gain/(Loss)

1231 Gain/Loss

  1. What is the amount and character of the gain or loss Longworth will recognize on the sale if the sale proceeds are decreased to $18,300 (before the §1231 netting process, if applicable)?

Description                                          Amount

Total Gain/(Loss) Recognized

Character of Recognized Gain (Loss)

Ordinary Gain/(Loss)

1231 Gain/Loss

 

Moran owns a building he bought during year 0 for $195,000. He sold the building in year 6. During the time he held the building he depreciated it by $52,250.
What is the amount and character of the gain or loss Moran will recognize on the sale in each of the following alternative situations? (Loss amounts should be indicated by a minus sign. Enter NA if a situation is not applicable. Leave no answer blank. Enter zero if applicable.)

 

 

  1. Moran received $166,000

Description                                                                         Amount

Total Gain/(Loss) Recognized

Ordinary Income or Unrecaptured

Remaining 1231 gain or (loss)

 

  1. Moran received $212,000

Description                                                                         Amount

Total Gain/(Loss) Recognized

Ordinary Income or Unrecaptured

Remaining 1231 gain or (loss)

 

  1. Moran received $131,500

 

Description                                                                         Amount

Total Gain/(Loss) Recognized

Ordinary Income or Unrecaptured

Remaining 1231 gain or (loss)

 

Aruna, a sole proprietor, wants to sell two assets that she no longer needs for her business. Both assets qualify as §1231 assets. The first is machinery and will generate a $23,250 §1231 loss on the sale. The second is land that will generate a $14,500 §1231 gain on the sale. Aruna’s ordinary marginal tax rate is 32 percent. (Input all amounts as positive values.)

 

  1. Assuming she sells both assets in December of year 1 (the current year), what effect will the sales have on Aruna’s tax liability?

 

Aruna’s tax will___________ by______________

 

  1. Assuming that Aruna sells the land in December of year 1 and the machinery in January of year 2, what effect will the sales have on Aruna’s tax liability for each year?

 

Aruna’s tax______________ in year 1 by__________-

Aruna’s tax______________ in year 2 by ____________

 

Kase, an individual, purchased some property in Potomac, Maryland, for $242,000 approximately 10 years ago. Kase is approached by a real estate agent representing a client who would like to exchange a parcel of land in North Carolina for Kase’s Maryland property. Kase agrees to the exchange.

What is Kase’s realized gain or loss, recognized gain or loss, and basis in the North Carolina property in each of the following alternative scenarios? (Loss amounts should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.)

 

  1. The transaction qualifies as a like-kind exchange and the fair market value of each property is $715,000.

Description                             Amount

Realized gain/(Loss)

Recognized gain/(Loss)

Adjusted basis in new property

 

 

 

 
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