C incorporated her sole proprietorship two years ago by transferring equipment that was worth $100,000 and had a basis of $40,000 (cost $70,000, depreciation claimed and deducted $30,000).The corporation sold the equipment for $65,000.During the period that the corporation held the asset, it had claimed and deducted $10,000 in depreciation.The corporation must recognize

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The corporation must recognize § 1245 gain of $35,000 only. This is because § 1245 recapture rules require the recognition of gain as ordinary income to the extent of depreciation claimed on the asset. Since the total depreciation claimed was $40,000 ($30,000 before incorporation and $10,000 after), and the sale price ($65,000) minus the asset's adjusted basis at the time of sale ($30,000 original basis - $40,000 total depreciation = -$10,000, but not less than zero, so we use $0, then add back depreciation taken by the corporation $10,000 = $10,000 adjusted basis) results in a gain of $55,000. However, the gain is limited to the depreciation taken, which is $40,000, making the entire gain characterized as § 1245 recapture. The error in calculation in the explanation means the correct interpretation of the gain, considering the basis and depreciation, aligns with § 1245 gain due to depreciation recapture, but the specific amount should be reconsidered based on accurate calculation from the provided numbers.

C Incorporated Her Sole Proprietorship Two Years Ago by Transferring