Assume a taxpayer gives up business or income producing property due to an involuntary conversion (casualty or condemnation). The taxpayer has a realized loss on the transaction Choose the correct statements from the list below. SELECT ALL THAT APPLY !! 1-If the taxpayer acquires replacement property, the basis of the replacement property simply will be its fair market value. 2-In this case , the involuntary conversion is treated a sale and the realized loss is recognized. 3-If the taxpayer acquires replacement property , the basis of the new property will be the same as the basis of the old property . 4-Taxpayer must reinvest at least the amount of the casualty or condemnation proceeds in order to defer loss recognition . Exercise 2 Luella Vust sells an apartment building for $ 750,000. Luella bought the apartment building for $650,000 and claimed $ 100,000 of depreciation deductions on the building. Assume Luella is a taxpayer in the 35% marginal tax bracket but she isn't subject to the 20% default capital gains rate at her income level. Select the correct statement to describe the tax treatment of this gain. 1-Luella will have a recognized gain of $100,000 that will be taxed at her marginal bracket of 35% 2-Luella will have a recognized gain of $ 200,000 which will be taxed at 15%. 3- Luella will have a recognized gain of $ 200,000. $ 100,000 will be taxed at 25% and $100,000 will be taxed at 15 %. 4-Luella will have a recognized gain of $ 100,000 that will be taxed at 15% . Exercise 3 Merker Auto, Inc. is a closely held C corporation that buys and sells cars and also rents some of the vehicles acquired. Merker sells a rental automobile for $10,000 Merker had bought the auto for $20,000 but had depreciated $14,000 of its cost. Select the correct tax treatment of this transaction for Merker. 1-Merker has a capital gain of $4,000. 2-Merker has an ordinary gain of $4,000 due to Section 1245 recapture. 3-Merker has an ordinary gain of $4,000 because this is an ordinary asset . 4-Merker may defer this gain by acquiring qualified replacement property Exercise 4 Which of the following assets are Section 1231 assets that are subject to Secti 1245 recapture ? Select all that apply !! 1-a delivery vehicle 2-An apartment building 3-An investor's option contract 3-production machinery 4-office technology