Orange Company had machinery destroyed by a fire on December 23, 2014. The machinery had been acquired on April 1, 2012, for $49,000 and its adjusted basis was $14,200. The machinery was completely destroyed and Orange received $30,000 of insurance proceeds for the machine and did not replace it. This was Orange's only casualty or theft event for the year. As a result of this event, Orange has:

Question

Quizplus · Accepted Answer

The insurance proceeds exceed the adjusted basis, resulting in a gain. The gain is subject to § 1245 recapture, which means the gain is treated as ordinary income to the extent of prior depreciation. The gain is $30,000 (insurance proceeds) - $14,200 (adjusted basis) = $15,800.

Orange Company Had Machinery Destroyed by a Fire on December