ExpertMedium1 markMultiple Choice
CPA · Question 60 · Area IV: Property Transactions
A taxpayer sells a business truck (Section 1245 property) for $30,000. Original cost was $50,000. Accumulated depreciation was $35,000. Adjusted basis was $15,000. What is the character of the gain?
A taxpayer sells a business truck (Section 1245 property) for $30,000. Original cost was $50,000. Accumulated depreciation was $35,000. Adjusted basis was $15,000. What is the character of the gain?
Answer options:
A.
$15,000 Section 1231 Gain
B.
$15,000 Capital Gain
C.
$15,000 Ordinary Income
D.
$5,000 Ordinary; $10,000 1231 Gain
How to approach this question
Gain = $30k - $15k = $15k. Recapture limit = Accum Depr ($35k). Since Gain < Accum Depr, all gain is Ordinary.
Full Answer
C.$15,000 Ordinary Income✓ Correct
C
IRC §1245. Gain recognized = $15,000. Since this is less than the accumulated depreciation ($35,000), the entire gain is recaptured as ordinary income.
Common mistakes
Treating it as 1231 capital gain.
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