Question

Alpha sold machinery that it used in its business to Beta, a related entity, for $40,450. Beta used the machinery in its business. Alpha bought the machinery a few years ago for $49,550 and has claimed $30,450 of depreciation expense. What is the amount and character of Alpha's gain?

Multiple Choice

• $21,350 ordinary income under §1239.

• $10,000 ordinary gain and $11,350 §1231 gain.

• $11,350 §1231 gain.

• $21,350 capital gain.

• None of the choices are correct.

Answer 1

	Correct option is: $21,350 Ordinary Income under g1239
	Workings:
	Cash	=	$     40,450
Add:	Accumulated Depreciation	=	$     30,450
Less:	Cost of Machinery	=	$     49,550
	Gain on Sale of Machinery	=	$     21,350
	Total gain shall be taxed as Ordinary Income g1239 Because whole gain adjusted up to recaptured depreciation. (As depreciation is more than gain amount)