PRINCIPLES OF TAXATION CHAPTER 12 LESSON Flashcards

PRINCIPLES OF TAXATION CHAPTER 12 LESSON Flashcards A tornado destroyed a barn on Jim's farm. Jim's adjusted basis in the barn was $25,000 at the time of the storm. He received insurance proceeds of $30,000 which was the fair market value of the barn. How much will Jim need to invest in a new barn in order to defer the $5,000 gain?Multiple choice question.$30,000Nothing; it is not a taxable event.$5,000$25,000

$30,000

When an installment sale involves Section 1245 depreciation recapture, how is the gain recognized?Multiple choice question.The portion of gain due to recapture is recognized using the installment method. Any remaining Section 1231 gain must be recognized immediately.The portion of gain due to recapture is recognized immediately.Any remaining Section 1231 gain can be recognized on the installment method.If there is depreciation recapture present in the gain, the entire gain is ineligible for recognition under the installment method.The gain is recognized using the installment method. A portion of each payment is taxed as ordinary income and a portion is taxed as 1231 gain.The portion of gain due to recapture is recognized immediately. Any remaining Section 1231 gain can be recognized on the installment method.When a buyer makes a down payment in the year of sale and then agrees to pay the remainder of the sale proceeds over a period of time, the arrangement is referred to as a(n)

______ ______.

Blank 1: installmentBlank 2: sale Julie transferred a building with an adjusted basis of $240,000 for another building with a fair market value of $350,000 and $25,000 in cash. The exchange qualified as a like-kind exchange. The realized gain on the exchange was $______. The recognized gain on the exchange was $______. Julie's adjusted basis in the building received is

$______.

Blank 1: 135000Blank 2: 25000Blank 3: 240000 When boot is received in an otherwise like-kind exchange, what is the effect on a realized gain?Multiple choice question.The receipt of boot will NOT affect the taxation of the realized gain.Receiving boot will disqualify the like-kind exchange treatment and the entire gain will be recognized.The taxpayer's recognized gain will be the lesser of the realized gain or the boot received.The taxpayer must recognize gain in the amount of boot received.The taxpayer's recognized gain will be the lesser of the realized gain or the boot received.

Section 1245 depreciation recapture related to an installment sale will be deferred and recognized over the life of the installment sale using the gross profit percentage.True false question.TrueFalse False Taxpayers selling property for cash must ______ on the sale. Taxpayers exchanging property for assets other than cash must ______ realized on the exchange if it qualifies as a like-kind exchange.defer the gain or loss; immediately recognize the gain or lossimmediately recognize the gain or loss; immediately recognize the gain or lossdefer the gain or loss; defer the gain or lossimmediately recognize the gain or loss; defer the gain or loss immediately recognize the gain or loss; defer the gain or loss In a direct conversion, if a taxpayer defers the recognized gain on the exchange of property, the adjusted basis in the property received is equal to theMultiple choice question.fair market value of the property.fair market value of the property plus the deferred gain.taxpayer's basis in the property involuntarily converted plus the deferred gain.taxpayer's basis in the property involuntarily converted.taxpayer's basis in the property involuntarily converted.Daniel is single and was given a house by his parents several years ago.He has used the home as his personal residence since it was given to him. Daniel's basis in the home was only $65,000. Due to the expansion of the city, he was able to sell the house for $320,000. How will this transaction be treated for tax purposes?Multiple choice question.The $255,000 gain is classified as a long-term capital gain taxed at preferential rates.The first $250,000 of the gain can be excluded and the remaining $5,000 gain will be treated as a long-term capital gain.The first $250,000 of the gain can be excluded and the remaining $5,000 gain will be treated as ordinary income.The $255,000 gain is excluded from taxation because it qualifies as a primary residence.The first $250,000 of the gain can be excluded and the remaining $5,000 gain will be treated as a long-term capital gain.A(n) ______ -______ ______results in taxpayers being able to trade assets and defer the recognition of the gain or loss to a future period in a subsequent transaction.Blank 1: likeBlank 2: kindBlank 3: exchange If a taxpayer is unable to meet the two-year requirement for the ownership and use tests due to ______ circumstances, he can exclude a percentage of the gain based on the time he owned and used the home.

Blank 1: unusual

Cindy's Ceramics engaged in a like-kind exchange that resulted in a $3,000 gain. In addition to the like-kind property received in the transaction, Cindy also received $5,000 cash. Cindy will have to recognize $ ______ of her

realized gain.

Blank 1: 3000

Which of the following choices is incorrect regarding replacement property involved in involuntary conversions?Multiple choice question.The property must be

used in a trade or business or held for investment to qualify as replacement property.The property must be related in use to the property that was involuntarily converted.The property must be similar to the property involuntarily converted.The property is more narrowly defined than is like-kind property in a like-kind exchange.The property must be used in a trade or business or held for investment to qualify as replacement property.