Norm acquired office equipment for his business at a cost of $10,000.After two years of use,Norm exchanges the equipment for different equipment with a fair market value of $7,000.MACRS depreciation on the original equipment was $4,753 The exchange qualifies as a like-kind exchange.Immediately after the exchange Norm sells the new equipment for $7,000 cash.What is the amount and character of the gain recognized?
A)No gain or loss.
B)$1,753 Section 1231 gain.
C)$1,753 Section 1245 ordinary income.
D)$4,753 Section 1231 gain.
E)$4,753 section 1245 ordinary income,and $3,000 Section 1231 loss.

Question

Quizplus · Accepted Answer

The gain recognized is $1,753, which is the lesser of the depreciation taken ($4,753) or the realized gain ($7,000 - $5,247 adjusted basis). This gain is characterized as Section 1245 ordinary income.

Norm Acquired Office Equipment for His Business at a Cost