On March 17, a calendar-year taxpayer sells a machine used in its business for $9,500.The machine was purchased sixteen months earlier for $9,000 and depreciation deductions of $1,800 have been taken.What is the amount and type of gain recognized on the sale?
A)$2,300 Section 1231 gain
B)$2,300 ordinary income
C)$1,800 Section 1245 recapture; $500 Section 1231 gain
D)$1,800 Section 1250 recapture; $500 Section 1231 gain

Question

Quizplus · Accepted Answer

The gain recognized is $2,300 ($9,500 sale price - $7,200 adjusted basis, where the adjusted basis is the original cost of $9,000 minus $1,800 of depreciation). The $1,800 of depreciation taken is recaptured as ordinary income under Section 1245, and the remaining $500 of gain is treated as Section 1231 gain, which can be taxed at more favorable rates if it is a net gain. Section 1250 applies to real property, not machinery, so it is not relevant in this case.

On March 17, a Calendar-Year Taxpayer Sells a Machine Used