Gray Industries (a sole proprietorship) sold three 1231 assets during 2008. Data on these property dispositions are as follows:
ASSET COST ACQUIRED DEPREC SOLD FOR SOLD ON
RACK 100,000 10-10-04 70,000 75,000 10-10-08
FORKLIFT 35,000 10-16-05 23,000 5,000 10-10-08
BIN 87,000 03-12-07 34,000 60,000 10-10-08
A) DETERMINE THE AMOUNT AND THE CHARACTER OF THE RECOGNIZED GAIN OR LOSS FROM THE DISPOSITION OF EACH ASSET.
B) ASSUMING GRAY HAS NO NONRECAPTURED NET 1231 LOSSES FROM PRIOR YEARS, HOW MUCH OF THE 2008 RECOGNIZED GAINS IS TREATED AS CAPITAL GAINS?
Adjusted basis is 100,000 - 70,000 = 30,000
Sold for $75,000
Gain to be recognized is 75000 - 30000 = 45000
Asset held over 1 year, Sec 1245 asset
The gain is all ordinary because Gray will report the lesser of accumulated depreciation or gain for a Sec 1245 asset.
Gain will be reported on page 2 of Form 4797 which flows to ...
The solution provides a full explanation for each situation including calculations, the reporting treatment and the applicable tax law. Each response includes the tax form number and the lines where the amounts would be reported.