Cassie owns equipment ($45,000 basis and $30,000 FMV)and a building ($152,000 basis and $158,000 FMV),which are used in Cassie's business.Cassie has used straight-line depreciation for both assets,which were acquired two years ago.Both the equipment and the building are destroyed in a fire,and Cassie collects insurance proceeds equal to the assets' FMV.The tax result to Cassie for this transaction is a
A)$15,000 Sec.1231 loss and a $6,000 ordinary gain.
B)$15,000 ordinary loss and a $6,000 ordinary gain.
C)$15,000 ordinary loss and a $6,000 Sec.1231 gain.
D)$15,000 Sec.1231 loss and a $6,000 Sec.1231 gain.

Question

Quizplus · Accepted Answer

B)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.$30,000 - $45,000 = $15,000 loss; $158,000 - $152,000 = $6,000 gain.

Cassie Owns Equipment ($45,000 Basis and $30,000 FMV)and a Building