1- Ben purchased an apartment building about 10 years ago, for $200,000. The building has been depreciated over the appropriate recovery period using the straight-line method. In the current year, the building was sold for $220,000, when the accumulated depreciation was $62,500. Ben is in the highest tax bracket; on his current year tax return, he should report:
a. Section 1231 gain of $20,000 and ordinary income of $62,500
b. Section 1231 gain of $62,500 and ordinary income of $20,000
c. Ordinary income of $82,500
d. Section 1231 gain of $20,000 and "unrecaptured depreciation" taxed at 25 percent of $62,500
e. None of these choices are correct.
2- Calculator
An asset's adjusted basis is computed as:
a. Original basis + capital improvements + gain or loss realized.
b. Original basis - capital improvements + accumulated depreciation.
c. Original basis + capital improvements - accumulated depreciation.
d. Original basis + capital improvements + accumulated depreciation.
e. None of these choices are correct.
3- Section 197 intangibles:
a. Include goodwill, going-concern value, and information bases.
b. Are not amortized over the actual estimated useful life of the intangible asset.
c. Are amortized over a 15-year period.
d. Were defined in the Revenue Reconciliation Act of 1993.
e. All of these choices are true.