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Taxation: Business equipment sale; installment sale

1. January 2008, Shari purchased a $20,000 piece of equipment for exclusive use in his business. She claimed a $6,000 section 179 deduction and $6,654 MACRS depreciation. She sold the equipment in November 2010 for $7,000. What is the amount and type of gain or loss and where on form 4797 does Shari report the sale?

A. $346 section 1231 loss, part I
B. $346 section 1231 gain, part I
C. $346 section 1245 loss, part III
D. $346 section 1245 gain, part III

2. All of the following taxpayers would like to report the sale as an installment sale. Which of the following taxpayers may do so?

A. Raul who sold his entire inventory valued at $12,000 to Quentin for $20,000. Qunitin intend to pay him back for 47,000 per year for the next three years.
B. Zack who sold a backhoe to Glen for $4,000 paid in two annual installment. Zack paid $5,000 for the equipment when it was new and had fully depreciated it before he sold it.
C. Judy who sold a rental condo for $100,000. She had purchase it for $60,000 and had claimed $20,000 depreciation. Her buyer intends to pay $20,000 per year plus 6% interest for 5 years.
D. Reiko who sold a plot of land for $48,000. She purchase it for $35,000 and paid $20,000 for improvement. Her buyer intends to pay for the land over 5 years

Solution Preview

1. For the sale of equipment, there is a loss of $346. It calculated as 20,000 - 6000 - 6654 = 7346. Since the sale was for $7000, there is a loss of $346. Because the property was held for more than one year, the reporting cannot be in Part II. The loss cannot be reported in Part III because only gains are allowable for Part III. That leaves Part I, ...

Solution Summary

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