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Explain how the gain from an involuntary conversion of
business property held more tha n one year is taxe d if the involuntary
conversion is the result of a condemnat ion. Explain the tax treat – ment if
the involuntary conversio n is due to a casualty

1. When is livestock considered Sec. 1231 property?
2.When is a nee Sec. 1231 gain treated as ord inary income?
3. Carlie who is single has a Sec. 1231 gain of
$10,000 and no Sec. 1231 losses during the current year.
Explain wh y the gain might be taxed at
(a) 15%, (b) 37%, (c) 25%, (d) 20 %, or (e) zero

Jack ie purchases equipment during the current year for
$800,000 that has a seven-year MACRS recovery period. She expects to sell the
property after three years. Jack ie anticipates that her marginal tax rate in
the year of sale will be significantly higher than her current margina l tax
rate Why might it be advantageous for her to use the stra ight-line met hod of
depreciation?

1.Karen purchased a computer three years ago for $15,300 to
use exclusively in her business. She expense d the entire cost of the computer
under Sec. 179. If she sells the computer during the current year for $3,721,
what is the amount and charac ter of her recognized gain?

1.Sheila owns a motel chat is used in a trade or business.
If she sells the morel, the gain will be Sec. 1245 ordinary income . During
what perio d of time was the morel placed into service?
2. Will an indiv idua l taxpa yer ever have to recognize
Sec. 1250 ord inary income on the sale of a building used for business and
placed in service after 1986? Expla in.

1.Marry sells his fully depreciated building at a gain to an
unrelated party. The building is purchased before 1981. ls any of the gain
taxed as ordinary income?
2. Which of the following assets (assume all assets have a
holding period of more than one year ) do not qualify as Sec. 1231 property :
inventory, a pig held for breeding, land used as a parking lot for customers,
and marketable securities?

1.Roger owns an apartment complex with a FMV of $2 million.
If he sells the apartment complex, $700,000 of the gain is Sec. 1231 gain wit h
$600,000 taxed at 25% because it is unrecap – rured Sec. 1250 gain . If he dies
before selling the apartment complex and his estate sells the prop – erty for
$2 million, how much ordinary income muse the estate recognize?
2. Rashad owns a duplex used 100 % as residentia l rental
property . Under what condit ions, if any,
will any gain that he recognizes be Sec. 1245 ordinary
income?

1. Why may a corporation recognize a greater amount of
ordinary income due to the sale of Sec. 1250 property than a noncorporate
taxpayer?
4. Assume a taxpayer sells equipment used in a trade or
business for a gain that is less than the depreciation allowed. If the taxpa
yer is a corporation, will a greater amount of Sec. 1245 income be recognized
than if the taxpayer is an individual? Explain.

John and Karen are unrelated individuals. John sold land
that is Sec. 1231 property held for three years and recognized a $50,000 gain.
Karen sold a building that is Sec. 1231 property held for three years and
recognized a $50,000 gain. Straight -line depreciation was used. John and Karen
both have a 32% tax rate, no other transactions involving capital assets or
1231 assets, and no nonrecap – tured Sec. 1231 losses. Except for the sales of
different assets, their tax situation is exactly the same. As a result of selling
his Sec. 1231 prop – erty, will John pay more, less or the same amount of taxes
than Karen as a result of selling her Sec. 1231 property? Explain.