Carol used her auto 60 percent for business and 40 percent for personal use.She purchased it for $10,800 and has taken $3,992 of depreciation on it.What is her recognized gain on a sale for $7,800 and what is it character?

Question

Quizplus · Accepted Answer

To find out the recognized gain, we need to calculate the adjusted basis of the auto which is calculated as follows:

Adjusted basis = Purchase price - Depreciation taken 
Adjusted basis = $10,800 - $3,992 = $6,808

Now, we can calculate the amount of gain recognized:

Gain recognized = Amount realized - Adjusted basis 
Gain recognized = $7,800 - $6,808 = $992

Since the auto was used more than 50% for business, the gain is a Section 1245 recapture. Therefore, the best answer is C.

Carol Used Her Auto 60 Percent for Business and 40