Martone Corporation sells two machines and a warehouse it has been using for storage in the current tax year.Each of the machines cost $25,000 and has an adjusted basis of $11,000 when each was sold for $14,000.The warehouse cost $105,000,has an adjusted basis of $60,000 and is sold for $95,000.All assets were depreciated using MACRS depreciation.What is the amount and type of gain recognized by Martone on the sale of these assets?
A)$6,000 Section 1245 recapture;$35,000 Section 1231 gain
B)$6,000 Section 1245 recapture;$7,000 Section 291 recapture;$28,000 Section 1231 gain
C)$6,000 section 1245 recapture;$35,000 Section 291 recapture
D)$41,000 capital gain
E)None of the above

Question

Quizplus · Accepted Answer

- For each machine:
  - Original cost = $25,000
  - Adjusted basis = $11,000
  - Sales price = $14,000
  - Recapture amount = sales price - adjusted basis = $14,000 - $11,000 = $3,000
- Total Section 1245 recapture for both machines = $6,000
- For the warehouse:
  - Original cost = $105,000
  - Adjusted basis = $60,000
  - Sales price = $95,000
  - Gain = sales price - adjusted basis = $95,000 - $60,000 = $35,000
- This gain is a Section 1231 gain because the warehouse was held for more than one year and was not held for sale to customers in the ordinary course of business.
- We need to calculate whether there is any Section 291 recapture, which applies to certain types of property with special depreciation rules under MACRS. However, neither the machines nor the warehouse qualify for Section 291 recapture, so there is none in this case.
- Therefore, the total recognized gain is: 
  - $6,000 Section 1245 recapture 
  - $35,000 Section 1231 gain

Martone Corporation Sells Two Machines and a Warehouse It Has