Chapter 12 (Based on Year 2021 rule)

18. Which of the following is a section 1231 asset?

a.Property held primarily for sale to customers

b.Accounts or notes receivable acquired in the ordinary course of business

c.Machinery and equipment used in a trade or business

d.Temporary investment of idle business cash in marketable corporate securities

e.none of the above

19.How is depreciation recapture treated on the sale of a section 1245 asset?

a.ordinary income

b.capital gain

c.capital loss

d.none of the above

20.Some examples of capital assets are stocks and bonds held in a personal account, a personal residence, and household furnishings.

a.True

b.False

21.Bob sold a business asset for $305,000.The business asset is a section 1245 asset.Bob purchased the asset for $300,000 and has taken $150,000 of depreciation on the asset.How much ordinary income must Bob recognize as a result of the transaction?

a.$150,000

b.$155,000

c.no gain recognized

d.$5,000

e.$50,000

22.A calendar-year taxpayer had net Code Sec. 1231 gains of $10,000 in 2020. He had net Code Sec. 1231 losses of $5,250 and $4,600 in 2018 and 2019, respectively. There were no net Code Sec. 1231 losses in 2015, 2016, and 2017. What portion of the net Code Sec. 1231 gain is reported as ordinary income, and what portion is considered long-term capital gain in 2020?

a.$10,000 is reported as ordinary income; no portion is treated as long-term gain.

b.No long-term capital gain is reported and $9,850 is reported as ordinary income.

c.$9,850 is reported as ordinary income and $150 is reported as long-term capital gain.

d.$5,250 is reported as long-term capital gain and $4,750 is reported as ordinary income.