Blue Company sold machinery for $45,000 on December 23, 2019.The machinery had been acquired on April 1, 2017, for $69,000 and its adjusted basis was $34,200.The § 1231 gain, § 1245 recapture gain, and § 1231 loss from this transaction are:

Question

Quizplus · Accepted Answer

The § 1245 recapture gain is the lesser of the gain realized or the accumulated depreciation. Since the adjusted basis is $34,200 and the original cost was $69,000, the accumulated depreciation is $34,800 ($69,000 - $34,200). The gain realized is $10,800 ($45,000 - $34,200). Therefore, the § 1245 recapture gain is $10,800. There is no § 1231 gain or loss because the entire gain is recaptured as ordinary income under § 1245.

Blue Company Sold Machinery for $45,000 on December 23, 2019