Liam used his auto 70 percent for business and 30 percent for personal use.He purchased it for $15,000 and has taken $5,460 of depreciation on it.What is his recognized gain on a sale for $12,000 and what is its character?

Question

Quizplus · Accepted Answer

CThe recognized gain on the sale is calculated by subtracting the adjusted basis from the sale price. The adjusted basis is the original cost minus depreciation taken. Here, the adjusted basis is $15,000 - $5,460 = $9,540. The sale price is $12,000, so the recognized gain is $12,000 - $9,540 = $2,460. However, because the car was used for business, the depreciation recapture rules apply. The entire gain of $2,460 is treated as ordinary income under Section 1245 because it is less than the depreciation taken ($5,460). Therefore, the correct answers are B) $3,360 Section 1245 ordinary income, which is a mistake in calculation in the options provided, and C) $5,460 Section 1245 ordinary income, which correctly identifies the nature of the gain but does not match the calculated gain. The correct calculation should reflect the gain as ordinary income due to depreciation recapture rules, but the exact amount of recognized gain ($2,460) is not listed among the options. The character of the gain is correctly identified as Section 1245 ordinary income due to the depreciation recapture, but the provided options do not accurately reflect the calculated gain.

Liam Used His Auto 70 Percent for Business and 30