Jennifer Judd gives her son, Jim, Section 1245 property. fte property has an adjusted basis of $11,000 to Jennifer, who has taken $2,000 in depreciation expense. Jim uses the property for three years, takes depreciation of $3,000 and then sells it for $14,000. What amount of gain must Jennifer recognize and what amount of gain must Jim recognize?

Question

Quizplus · Accepted Answer

the re is no recapture when Jennifer gives the property to her son, Jim. Jim, however, will carry over the recapture potential of $2,000 and will also have recapture potential of $3,000 from the time that he owned it. the total of $5,000 is less than the realized gain of $6,000 ($14,000 − $8,000 basis); therefore, $5,000 is recaptured as ordinary income and the remaining $1,000 is Section 1231 gain.

Jennifer Judd Gives Her Son, Jim, Section 1245 Property