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

The recognized gain is calculated as the sale price ($7,800) minus the adjusted basis ($10,800 purchase price - $3,992 depreciation = $6,808). The gain is $992. Since 60% of the car was used for business, the business portion of the gain is $992 * 60% = $595.20. However, the entire depreciation taken ($3,992) is subject to recapture under Section 1245, and since the gain is less than the depreciation, the entire gain is recaptured as ordinary income. Therefore, the Section 1245 recapture is $2,192.

Carol Used Her Auto 60 Percent for Business and 40