ACC 430 Exam 2 Questions with
Guaranteed Pass Solutions 2025-2026
Edition.
capital losses - Answer only offset capital gains
ordinary losses - Answer fully deductible against any type of income
section 1231 - Answer controls ultimate character of gains/losses of business assets sold
owner's amount realized in sale/exchange - Answer any cash received plus the fair market
value of any prop received (debt relief is included as amount realized)
seller-financed sale - Answer A sale transaction in which the seller accepts the purchaser's
debt obligation as part of the sale price (when negotiated at arm's length)
include principal in amount realized
include income in ordinary income (not recognized)
installment method - Answer seller does not recognize entire gain realized in year of sale.
calc's gain in year of sale and each subsequent year by multiplying cash received during year
received during year by a gross profit percentage
interest payments treated as ordinary income (not recognized)
not allowed to defer gains in sales of stocks or securities traded on an established market
can’t be applied to sales of inventory sold in normal course of business
gross profit percentage - Answer divide gain by sale price
,pledge of an installment note is treated as cash disposition
seller basis - Answer $ seller will recover as tax free principal pmts (only when purchaser note
is received in seller financed sale)
related party losses (disallowance rule) - Answer disallowed (members of family, or indiv/corp
if indiv owns more than 50% of the value of the corp's outstanding stock, or 2 corps controlled
by same shareholders)
arms length n/a
capital gain/loss requirement - Answer 1. must be thru sale/exchange
2. asset surrendered must be a capital asset
every asset is capital unless it falls into one of these categories: - Answer 1. inventory items
2. accts/notes receivable acquired thru normal course of business
3. supplies used/consumed in normal course of business
4. real/depreciable prop. used in a business
5. a patent, invention, model or design
6. certain publications of the us govt
7. commodities derivative financial instruments held by a dealer
8. hedging transaction properties
Capital Loss Limitation - Answer capital losses can be deducted only to extent of capital gains
Capital loss limitation for individual taxpayers - Answer $3,000 of capital losses in excess of
capital gains
nondeductible capital losses - Answer carry forward indefintiely for indiv.
carry forward 5 years for corp and back 3 years
capital gain preferential/regular rates - Answer corps pay regular rate on capital gains (21%)
, equity and creditor interests in other firms are capital in character
goodwill and going conern value created by a profitable business are capital
capital assets and IP - Answer if owned by creator, ordinary assets (patents, copyroghts, etc.).
If given away via gift or any non-exchange, the recipient must still treat them as ordinary assets
(not capital)
land and capital assets - Answer if purchase for investment, capital
if purchase for resale, ordinary
Section 1231 Assets - Answer Category of capital gain assets that includes involuntary
conversions of capital assets held for more than one year, and sales or exchanges of depreciable
property and real property used in the taxpayer's trade or business and held for more than one
year (if not inventory).
If the recognized gains on all such assets exceed the recognized losses, the gain is treated as
long-term capital gain unless the depreciation recapture rules are applicable. But if the losses
exceed the gains, the loss is taken as a deduction against ordinary income.
4th category of non capital assets. includes intangibles that are amortized (purchased goodwill)
best of both worlds
recapture of prior year ordinary losses - Answer if capital gain thru 1231 assets is obtained,
the prior year's (5 year) section 1231 ordinary losses are recaptured as ordinary income
Depreciation Recapture - Answer the cumulative amount of depreciation that has been taken
since the property was placed into service This amount is generally taxed at the depreciation
recapture tax rate when/if the property is sold
section 1245 recapture - Answer Full recapture of depreciation or amortization allowed for
tangible personalty or purchased/amortizable intangibles
=lesser of gain recognized or accum deprec/amort (treated as ord income)
Guaranteed Pass Solutions 2025-2026
Edition.
capital losses - Answer only offset capital gains
ordinary losses - Answer fully deductible against any type of income
section 1231 - Answer controls ultimate character of gains/losses of business assets sold
owner's amount realized in sale/exchange - Answer any cash received plus the fair market
value of any prop received (debt relief is included as amount realized)
seller-financed sale - Answer A sale transaction in which the seller accepts the purchaser's
debt obligation as part of the sale price (when negotiated at arm's length)
include principal in amount realized
include income in ordinary income (not recognized)
installment method - Answer seller does not recognize entire gain realized in year of sale.
calc's gain in year of sale and each subsequent year by multiplying cash received during year
received during year by a gross profit percentage
interest payments treated as ordinary income (not recognized)
not allowed to defer gains in sales of stocks or securities traded on an established market
can’t be applied to sales of inventory sold in normal course of business
gross profit percentage - Answer divide gain by sale price
,pledge of an installment note is treated as cash disposition
seller basis - Answer $ seller will recover as tax free principal pmts (only when purchaser note
is received in seller financed sale)
related party losses (disallowance rule) - Answer disallowed (members of family, or indiv/corp
if indiv owns more than 50% of the value of the corp's outstanding stock, or 2 corps controlled
by same shareholders)
arms length n/a
capital gain/loss requirement - Answer 1. must be thru sale/exchange
2. asset surrendered must be a capital asset
every asset is capital unless it falls into one of these categories: - Answer 1. inventory items
2. accts/notes receivable acquired thru normal course of business
3. supplies used/consumed in normal course of business
4. real/depreciable prop. used in a business
5. a patent, invention, model or design
6. certain publications of the us govt
7. commodities derivative financial instruments held by a dealer
8. hedging transaction properties
Capital Loss Limitation - Answer capital losses can be deducted only to extent of capital gains
Capital loss limitation for individual taxpayers - Answer $3,000 of capital losses in excess of
capital gains
nondeductible capital losses - Answer carry forward indefintiely for indiv.
carry forward 5 years for corp and back 3 years
capital gain preferential/regular rates - Answer corps pay regular rate on capital gains (21%)
, equity and creditor interests in other firms are capital in character
goodwill and going conern value created by a profitable business are capital
capital assets and IP - Answer if owned by creator, ordinary assets (patents, copyroghts, etc.).
If given away via gift or any non-exchange, the recipient must still treat them as ordinary assets
(not capital)
land and capital assets - Answer if purchase for investment, capital
if purchase for resale, ordinary
Section 1231 Assets - Answer Category of capital gain assets that includes involuntary
conversions of capital assets held for more than one year, and sales or exchanges of depreciable
property and real property used in the taxpayer's trade or business and held for more than one
year (if not inventory).
If the recognized gains on all such assets exceed the recognized losses, the gain is treated as
long-term capital gain unless the depreciation recapture rules are applicable. But if the losses
exceed the gains, the loss is taken as a deduction against ordinary income.
4th category of non capital assets. includes intangibles that are amortized (purchased goodwill)
best of both worlds
recapture of prior year ordinary losses - Answer if capital gain thru 1231 assets is obtained,
the prior year's (5 year) section 1231 ordinary losses are recaptured as ordinary income
Depreciation Recapture - Answer the cumulative amount of depreciation that has been taken
since the property was placed into service This amount is generally taxed at the depreciation
recapture tax rate when/if the property is sold
section 1245 recapture - Answer Full recapture of depreciation or amortization allowed for
tangible personalty or purchased/amortizable intangibles
=lesser of gain recognized or accum deprec/amort (treated as ord income)
