Test - Tax Analyst Certification Test (2017) Dispositions of Assets Question 12

Question

Test - Tax Analyst Certification Test (2017) Dispositions of Assets Question 12 of 75. A taxpayer, in the 25% bracket before considering the sale, sold for a gain of $10,000 a residential rental building, purchased and put into service in March 2010. (The sale of land is not included in this question.) No other residential real property was sold in this tax year. The depreciation taken or allowed is $15,635. What is the amount and nature of the gain or loss? O $10,000 gain taxed at a maximum or 15%. $10,000 gain taxed at a maximum of 25% (or 33% if the gain pushes he taxpayer into a higher tax bracke O $10,000 gain taxed at a maximum of 25%. 0 $15,635 gain taxed at a maximum of 25% Mark for follow up avemplifies a fully nontaxable exchange

Explanation / Answer

QUESTION 12:-

ANSWER: B PART

EXPLANATION: SINCE ASSET HAS BEEN SOLD IN THE SAME YEAR OF PURCHASE THERFORE ANY GAIN OR LOSS ARISING FROM SUCH SALE OF ASSET WOULD BE CONSIDERED AS A SHORT TERM CAPITAL GAIN. SHORT TERM GAIN IS TAXABLE AT NORMAL SLAB RATES OF THE ASSESEE.

NO DEPRECIATION SHALL BE CHARGED IN THE YEAR OF SALE OF ASSET.

AND IF THE INCOME OF THE ASSESEE INCREASES DUE TO INCREASE IN CAPITAL GAIN RESULTING IN HIGHER INCOME, HIS TAX RATES WOULD ALSO INCREASED .

QUESTION 13:-

ANSWER : A PART

SINCE IT IS A LIKE - KIND EXCHANGE I.E PROPERTIES ARE IN SAME NATURE AND CHARACTER, AND GAIN OR LOSS SHALL BE CALCULATED ONLY WHEN YOU ACTUALLY DISPOSE OR SOLD THE ASSET.

when the asset has been exchanged for another no cash movement or extra cash is generated just like in a barter system . hence sale price gets matched with cost of acquistion. Thus no acsh inflow or outflow take place . therefore, it is a neutral stiuation where no tax will generate .

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