26. Hoover, LP sold a commercial office building used in the corporate business for $3,500,000. Hoover purchased the building in 1995 for a cost of $3,700,000 and had deducted $1,200,000 in Section 1250 depreciation through date of sale. Hoover should characterize the $1,000,000 gain recognized on sale as:

A. $1,200,000 unrecaptured Section 1250 gain and $200,000 Section 1231 gain. B. $1,200,000 unrecaptured Section 1250 gain and $200,000 Section 1231 loss.

C. $1,000,000 Section 1231 gain.

D. $1,000,000 Ordinary gain. E. $1,000,000 Capital gain. F. None of the above.

27. Assume a building, owned by a REIT, increases in value and the REIT that owns it sells the building for $120 million and then makes a capital gain distribution to its shareholders. Which of the following is true regarding?

A U.S. individual investor's tax treatment:

1. The gain on the sale will be taxed at the ordinary income tax rate.
2. The gain on the sale will be taxed at the capital gain tax rate.
3. There is no tax on the net gain at the shareholder level.
4. None of the above.

A tax-exempt investor's tax treatment:

1. The gain on the sale will be taxed at the ordinary income tax rate.
2. The gain on the sale will be taxed at the capital gain tax rate.
3. There is no tax on the net gain at the shareholder level.
4. None of the above.

A non-US investor's tax treatment:

1. The gain on the sale will be taxed at the ordinary income tax rate.
2. The gain on the sale will be taxed at the capital gain tax rate.
3. There is no tax on the net gain at the shareholder level.
4. None of the above.

28. Johnson Inc. and C&K Company entered into an exchange of real property. Here is the information for the properties to be exchanged. Pursuant to the exchange, C&K paid $25,000 cash to Johnson and assumed the mortgage on the Johnson property. Compute C&K's gain recognized on the exchange (if any) and its tax basis in the property received from C&K.

_____________________________________

29. Identify the following as "ECI" (effectively connected income) or "Not ECI" (not effectively connected income) if earned by a foreign person:

Interest income on loans from U.S. corporate borrowers.

Dividends from a non-US corporation.

__ Capital gain distributions from a REIT to a non-US corporate investor.

A gain on the sale of a land located in Russia.

Rental income from an actively managed commercial property in New York.

30. Alice owns an apartment complex with an adjusted basis of $305,000. A flood occurs on a property, and the insurance policy reimburses Alice $500,000 for the loss. The transaction may be taxable as follows (circle as many as apply more than one is correct):

A. Gain of $195,000 on the sale of the asset.

B. No taxable gain if $900,000 is reinvested into other commercial property owned within two years after the insurance is received.

C. No taxable gain if $305,000 is reinvested into other commercial property owned within two years after the insurance is received.

D No taxable gain if $700,000 is reinvested into another apartment complex within two years after the insurance is received.

E No taxable gain if $305,000 is reinvested to repair the existing apartment complex.