Question $10$

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Cassie owns equipment $($$$45,000$ basis and $$30,000$ FMV$)$ and a building $($$$152,000$ basis and $$158,000$ FMV$),$ which are used in Cassie's business. Cassie has used straight$-$line depreciation for both assets, which were acquired two years ago. Both the equipment and the building are destroyed in a fire, and Cassie collects insurance proceeds equal to the assets' FMV$.$ The tax result to Cassie for this transaction is a

Select one:

a$.$

$$15,000$ Sec. $1231$ loss and a $$6,000$ ordinary gain.

b$.$

$$15,000$ ordinary loss and a $$6,000$ ordinary gain.

c$.$

$$15,000$ ordinary loss and a $$6,000$ Sec. $1231$ gain.

d$.$

$$15,000$ Sec. $1231$ loss and a $$6,000$ Sec. $1231$ gain.

Question $11$

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Dinah owned land with a FMV of $$130,000($adjusted basis $$120,000)$ which is investment property $($a capital asset$).$ Dinah owned a second tract of land, a $1231$ asset, with a FMV of $$46,000($adjusted basis $$50,000).$ Both tracts were acquired in $2001$ and condemned by the state this year. The state paid an amount equal to FMV$.$ If there are no other transactions involving capital assets or $1231$ assets, Dinah must report on her current year return

Select one:

a$.$

$$6,000$ net ordinary income.

b$.$

$$6,000$ net section $1231$ gain treated as a net capital gain.

c$.$

a LTCG of $$10,000$ and a $1231$ loss of $$4,000.$

d$.$

a LTCG of $$10,000$ and a nondeductible loss of $$4,000.$

Question $12$

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Douglas bought office furniture two years and four months ago for $$25,000$ to use in his business and elected to expense all of it under Sec. $179.$ Depreciation of $$3,500$ would have been taken under the MACRS rules. If Douglas converts the furniture to nonbusiness use today, Douglas must

Select one:

a$.$

amend the prior two years tax returns.

b$.$

include $$3,500$ in gross income in year of conversion.

c$.$

include $$21,500$ in gross income in year of conversion.

d$.$

include $$25,000$ in gross income in year of conversion.

Question $13$

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Drake and Davina are married and file a joint return for $2016$ with taxable income of $$100,000$ and tax preferences and adjustments of $$51,000$ for AMT purposes. Their regular tax liability is $$16,533.$ What is the amount of their total tax liability?

Select one:

a$.$

$$17,472$

b$.$

$$39,260$

c$.$

$$34,005$

d$.$

$$16,533$

Question $14$

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During the current year, Danika recognizes a $$30,000$ Section $1231$ gain and a $$22,000$ Section $1231$ loss. Prior to this, Danika's only Section $1231$ item was a $$15,000$ loss two years ago. Danika must report aNo

Select one:

a$.$

$$8,000$ net LTCG$.$

b$.$

$$8,000$ ordinary income.

c$.$

$$15,000$ ordinary income.

d$.$

$$8,000$ ordinary income and $$7,000$ net LTCG$.$

Question $15$

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During the current year, George recognizes a $$30,000$ Section $1231$ gain on sale of land and a $$18,000$ Section $1231$ loss on the sale of land. Prior to this, George's only Section $1231$ item was a $$14,000$ loss six years ago. George must report a

Select one:

a$.$

$$12,000$ net LTCG$.$

b$.$

$$12,000$ ordinary income.

c$.$

$$14,000$ ordinary income.

d$.$

$$10,000$ ordinary income and $$2,000$ net LTCG$.$

Question $16$

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During the current year, Kayla recognizes a $$40,000$ Section $1231$ gain on sale of land and a $$22,000$ Section $1231$ loss on the sale of land. Prior to this, Kayla's only Section $1231$ item was a $$10,000$ loss six years ago. Kayla is in the $28\%$ marginal tax bracket. The amount of tax resulting from these transactions is

Select one:

a$.$

$$2,700.$

b$.$

$$3,600.$

c$.$

$$4,000.$

d$.$

$$5,040.$

Question $17$

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Emma owns a small building $($$$120,000$ basis and $$123,000$ FMV$)$ and equipment $($$$35,000$ basis and $$22,000$ FMV$).$ Both assets were acquired three years ago, are used in Emma's business, and are depreciated using straight$-$line depreciation. Both are destroyed by fire. Insurance proceeds were equal to their FMVs$.$ Only one other transfer of an asset occurs during the year, and a $$3,000$ LTCL is recognized. After considering all transactions, the tax result to Emma is a

Select one:

a$.$

$$13,000$ NLTCL$.$

b$.$

$$13,000$ ordinary loss.

c$.$

$$3,000$ LTCG; $$3,000$ LTCL; and $$13,000$ ordinary loss.

d$.$

$$10,000$ net ordinary loss and a $$3,000$ NLTCL$.$

Question $18$

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Eric purchased a building in $2005$ that he uses in his business. Eric uses the straight$-$line method for the building. Eric's original cost for the building is $$420,000$ and cost$-$recovery deductions are $$120,000.$ Eric is in the top tax bracket and has never sold any other business