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1.Assume the same faces as in Problem 1:13-47 except the
taxpa yer is a corporation and answer the same questions.
2. Secs. 1231, 1245, and Unrecaptured Sec. 1250. Brigham is
single and is in the 32% marginal income tax bracket. He has the sales or
exchanges below. Ac the beginning of the year, he has nonrecaptured net Sec.
1231 losses of $10,000. Determine the increase or decrease in Brigham’s tax
liability as a result of the following independent sales or exchanges.
a. Sells equipment used in his trade or business for
$40,000. The equipment was purchased for $100,000 and depreciation allowed
amounts to $72,000.
b. Sells land used in his trade or business for $80,000. The
land was purchased four years ago for $61,000.
c. He sells a building used in his trade or business for
$163,000. The building was purchased in 1997 for $250,000 and depreciation
allowed amounts to $110,000. d. Same as Part c except he sells the building for
$127,000.

Secs. 1245 and 1231. The LaPoint Corporation placed in
service $350,000 of used equipment (seven-year recovery property) on June 3,
2018 and elected to expense $250,000 as Sec. 179 depreciation expense but
elected out of bonus depreciation. LaPoint sold the equipment for $150,000 on
November 22, 2019. Determine the following:
a. Depreciation allowed in 2018
b. Depreciation allowed during 2019
c. Amount of gain or loss and character.

Unrecaptured Sec. 1250 Gain and 1231. Mr. Briggs purchased
an apartment complex on Januar y 10, 201 7, for $2 million with 10% of the
price allocated to land. He sells the complex on October 22, 2019, for $2.5
million. Assume that 10% of the $2.5 million selling price is allocated to land
and 90% is allocated to the building.
a. How much depreciation was allowed for 2017?
b. How much depreciation is allowed for 2019?
c. Will any of the gain be ordinary income?
d. What is the amount of gain and the character of the gain
on the sale of the building?
e. What is the amount of gain and the character of the gain
on the sale of the land?
f. Will any of the gain be taxed at 25 %?

Nonresidential Real Property-Noncorporate Taxpayer .
Consider three office buildings placed in service as shown below and answer the
following true -false questions. Assume all assets are sold by a noncorporate
taxpayer at a gain and there are no other sales or exchanges or nonrecaptured Sec.
1231 loss unless told otherwise. None of the buildings are fully depreciated
when sold and the taxpayer’s tax rate is 32 % and 15% for ANCG .
1. Some or all of the gain on sale of #1 is ordinary if
accelerated depreciation was used.
2. If the straight-line method of depreciation was used for
#1, some or all of the gain
may be taxed at 25%.
3. Gain on the sale of #2 could be Sec. 1245 ordinary
income.
4. Gain on the sale of #2 could be Sec. 1231 gain.
5. Part of the gain on the sale of #2 could be Sec. 1245
ordinary income and part could be
Sec. 1231 gain.
6. If the straight-line method of depreciation was used for
#2, some or all of the gain
may be taxed at 25%.
7. Some or all of the gain on the sale of #3 could be Sec.
1245 ordinary income.
8. Some or all of the gain on the sale of #3 could be taxed
at 25% .
9. Some of the gain on the sale of #3 could be Sec. 1250
ordinary income.
10. If the taxpayer has a nonrecaptured Sec. 1231 loss of
$30,000 and the gain on the sale
of #3 is $40,000, all $40,000 of the gain is taxed as
ordinary income.

Secs. 1231 and 1250-Placed in Service After 1986. Molly,
whose tax rate is 37 %, sells an apartment complex for $4.5 million with 10% of
the price allocated to land. The apartment complex was purchased in 1994. She
has no other sales or exchanges during the year and no nonrecaptured net Sec.
1231 losses. Information about the assets at the time of sale is:
a. What is the recognized gain on the sale of the building
and the character of the gain?
b. What is the recognized gain on the sale of the land and
the character of the gain?
c. How much of the Sec. 1231 gain is taxed at 25% ?
d. If Molly has NSTCL of $50,000, will the capital loss
reduce the Sec. 1231 gain taxed at 25 % or 20% ?

Secs. 1231, 1245, and 1250. Glen, whose tax rate is 32%, sells each of the following assets for $200,000. Each case is an independent case.

Holly has recognized a $9,000 STCL. She has no ocher
recognized capital gains and losses in 2019. She is considering the sale of a
Sec. 1231 asset held for four years at a $5,000 gain in 2019. She had not
recognized any Sec. 1231 losses during the previous five years and does not
expect to have any other Sec. 1231 transactions in 2019. Her marginal tax rare
for 2019 is 32 %. What is the amount of increase in her 2019 taxes if Holly
recognizes the $5,000 Sec. 1231 gain in 2019?

Julie Hernandez is single and has no dependents. She opera
tes a dairy farm and her Social Security number is 000-00-1111. She lives at
1325 Vermont Street in Costa, Florida. Consider the following information for
the current year:
• Schedule C was prepared by her accountant and the net
profit from the dairy opera – tions is $48,000. • Itemized deductions amount to
$4,185.
• Dividend income (qualified dividend) amounts to $280 .
• Stare income tax refund received during the year is $125 .
She did not itemize last year.
• In June, a burglar broke into her house and stole the
following two assets, which were acquired in 1989 :
The following assets used in her business were sold during
the year:
In August, three acres of the farm were taken by the state
under the right of eminent domain for the purpose of building a highway. The
basis of the three acres is $1,500, and the state paid the FMV, $22,000, on
February 10. The farm was purchased on August 12, 1987. Nonrecaprured net
Section 1231 losses from the five most recent tax years preceding the current
year amount ro $7,000 . Estimated taxes paid during the year amount to $32,000
. Prepare Forms 1040, 4684 Section A, 4797, and Schedule D. (Do not consider
the alternative minimum tax or self-employment taxes discussed in Chapter
I:14.)

Your client, Kent Earl, whose tax rare is 35%, owns a
bowling alley and has indicated that he wants to sell the business for $1
million and purchase a minor league baseball franchise. His business consists
of the following tangible assets:
Because you have another client, Tom Quick, who is
interested in purchasing a business, you informed Tom of Kent’s interest in
selling. Tom wants to purchase the bowling alley, and the price sounds right to
him. The bowling alley business has been very profitable in the last few years
because Kent has developed a loyal group of customers by promoting bowling
leagues during the week days and a special Saturday afternoo n session for
children in the elementary school grades. Kent and Tom have come to you and
wane co know how the transaction should be handled for the best tax results.
You know chat the $1 million purchase price will have to be allocated among the
assets and it will be necessary to estimate the FMV of all assets. Because FMV
is often subjective, Kent and Tom recognize char some flexibility might exist
in allocating the purchase price. For example, it might be just as easy to
justify a FMV of $300,000 or $325,000 for the equipment.
a. What advice do you have for Kent with respect to the
allocation (i.e., should he be interested in allocating more to some assets
than others)? Explain the reasoning for your advice.
b. Would your advice to Kent be different if he had a large
amount of capital losses and no nonrecaptured nee Sec. 1231 losses?
c. What advice do you have for Tom with respect co the
allocation (i.e., should he be interested in allocating more of the purchase
price co some assets than to others)? Explain the reasoning for your advice.
d. What advantages might result from having Kent sign an
agreement nor co compete (i.e., operate a bowling alley)?
e. Should you have a concern about the ethical implications
of advising both Kent and Tom?

Berkeley Corporation has a policy of furnishing new
automobiles to the athletic depart – ment of the local university. The
automobiles are used for short periods of time by the extremely popular head
basketball coach. When the automobi les are returned to Berkeley Corporation,
they are sold to regular customers. The owner of Berkeley Corporation maintains
that any such cars held for more than one year should qualify as Sec. 1231
property. Do you agree?
Research sources include:
• Rev. Rul. 75-538, 1975 -2 C.B. 34