California State University, Fullerton - ACCT 570 1)Section 1239 recharacterizes gain on the sale of depreciable property to related person as ordinary income

California State University, Fullerton - ACCT 570

1)Section 1239 recharacterizes gain on the sale of depreciable property to related person as ordinary income.

2. Which of the following realized gains results in a recognized gain? Computer equipment traded for computer equipment.

3. Kimberly sold equipment that it uses in her business for $50,000. Kimberly bought the equipment two years ago for $60,000 and has claimed $30,000 of depreciation expense. What is the amount and character of Kimberly’s gain or loss?

4. Which of the following is true regarding section 1239? It only applies to sales between unrelated taxpayers.

5. Hauswirth Corporation sold (or exchanged) some manufacturing equipment in year 0. Hauswirth bought the machinery several years ago for $65,500 and it has claimed $25,400 of depreciation expense against the equipment.

• 1. Assuming that Hauswirth receives $56,700 in cash for the equipment, compute the amount and character of Hauswirth’s recognized gain or loss on the sale.
• Recognize an 16,600 gain. The entire gain is ordinary income under 1245 dep recapture rules, computed as follow:

• 2. Assuming that Hauswirth receives like-kind equipment with a fair market value of $56,700 in exchange for its equipment, compute Hauswirth’s gain realized, gain recognized, deferred gain, and basis in the new equipment.
• Bcs this transaction qualifies as a 1031 like kind exchange, Hauswirth will not recognize any of its 16,600 realized gain (its deferred gain is 16,600). Hauswirth’s basis

• 3. Assuming that Hauswirth receives $39,500 in cash in year 0 and a $61,000 note receivable that is payable in year 1, compute the amount and character of Hauswirth’s gain in year 0 and in year 1.
• In year 0, Hauswirth recognizes 23,000 of ordinary income and 1,428 of 1231 gain. In year 1, it recognizes 3,751 of 1231 gain, computed as follows:

6. [The following information applies to the questions displayed below.]

Rafael sold an asset to Jamal. What is Rafael's amount realized on the sale in each of the following alternative scenarios?

1. 1. Rafael received $80,000 of cash and a vehicle worth $10,000. Rafael also pays $5,000 in selling expenses.

1. 2. Rafael received $80,000 of cash and was relieved of a $30,000 mortgage on the asset he sold to Jamal. Rafael also paid a commission of $5,000 on the transaction.

1. 3. Rafael received $20,000 of cash, a parcel of land worth $50,000, and marketable securities of $10,000. Rafael also paid a commission of $8,000 on the transaction.