Emma owns a small building ($120,000 basis and $123,000 FMV)and equipment ($35,000 basis and $22,000 FMV).Both assets were acquired three years ago,are used in Emma's business,and are depreciated using straight-line depreciation.Both are destroyed by fire.Insurance proceeds were equal to their FMVs.Only one other transfer of an asset occurs during the year,and a $3,000 LTCL is recognized.After considering all transactions,the tax result to Emma is a
A)$13,000 NLTCL.
B)$13,000 ordinary loss.
C)$3,000 LTCG; $3,000 LTCL; and $13,000 ordinary loss.
D)$10,000 net ordinary loss and a $3,000 NLTCL.

Question

Quizplus · Accepted Answer

D)If the losses from involuntary conversion arising from fire exceed the gains,the gains and losses are treated as ordinary gains and losses which is the case in this problem.$123,000 - $120,000 = $3,000 gain; $22,000 - $35,000 = $13,000 loss.The casualty results in an ordinary net loss of $10,000.

Emma Owns a Small Building ($120,000 Basis and $123,000 FMV)and