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Home / CPAUS-REG · REG: Regulation / Unit 4: Federal Taxation of Property Transactions

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Unit 4: Federal Taxation of Property Transactions

Prepare for Unit 4: Federal Taxation of Property Transactions with practice questions covering 7 topics. Part of REG: Regulation — build your knowledge and track your progress with GoCPAus.

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105
Topics
7
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What’s in it.

7 topics
  • Topic 01

    Basis Determination

    15 questions
  • Topic 02

    Realisation and Recognition of Gains and Losses

    15 questions
  • Topic 03

    Capital Gains and Losses

    15 questions
  • Topic 04

    Like-Kind Exchanges

    15 questions
  • Topic 05

    Instalment Sales

    15 questions
  • Topic 06

    Section 1245 and Section 1250 Recapture

    15 questions
  • Topic 07

    Passive Activity Rules

    15 questions

Sample questions

3 of many

A few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.

  1. A taxpayer sells equipment for \$80,000. The equipment originally cost \$100,000 and has \$70,000 of accumulated depreciation. What is the Section 1245 ordinary income recapture?

    • \$50,000 — the gain is \$50,000 and the recapture equals the lesser of depreciation taken (\$70,000) or gain recognised (\$50,000).
      Correct answer
    • \$50,000 ordinary income and \$20,000 Section 1231 gain.
    • \$70,000 — all depreciation taken is recaptured as ordinary income.
    • \$20,000 — recapture equals the difference between sale price and original cost.
    Explanation

    Section 1245 recapture = lesser of (1) total depreciation taken or (2) gain recognised. Adjusted basis = \$100,000 − \$70,000 = \$30,000. Gain recognised = \$80,000 − \$30,000 = \$50,000. Depreciation taken = \$70,000. Recapture = lesser of \$70,000 or \$50,000 = \$50,000 ordinary income. Since the entire \$50,000 gain is recaptured, there is no remaining Section 1231 gain.

  2. A taxpayer with AGI of \$135,000 actively participates in a rental property that produces a \$20,000 net loss. What is the deductible rental loss under the §469(i) allowance?

    • \$7,500
      Correct answer
    • \$12,500
    • \$0
    • \$25,000
    Explanation

    Phase-out calculation: AGI excess over \$100,000 = \$135,000 − \$100,000 = \$35,000. Reduction = 50% × \$35,000 = \$17,500. Remaining allowance = \$25,000 − \$17,500 = \$7,500. Since the actual loss (\$20,000) exceeds the remaining allowance (\$7,500), only \$7,500 is deductible against non-passive income. The remaining \$12,500 of rental loss is suspended and carried forward.

  3. A taxpayer buys stock on March 15 and sells it on March 15 of the following year. Is the gain short-term or long-term?

    • Short-term, because the holding period is exactly 12 months and does not exceed 12 months.
      Correct answer
    • The character depends on whether the stock is listed on an exchange.
    • Long-term, because the stock was purchased and sold on the same date of the month in different years.
    • Long-term, because the sale occurs in the following tax year.
    Explanation

    Under IRC §1222, long-term treatment requires holding the property for more than 12 months. The holding period begins the day after acquisition (March 16) and includes the date of sale. Selling exactly on March 15 of the following year produces a holding period of exactly 12 months — which is not more than 12 months — so the gain is short-term. One additional day (selling on March 16) would produce long-term treatment.