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t sold his s corporation stock for $100,000. His basis in the stock was $40,000, which...

t sold his s corporation stock for $100,000. His basis in the stock was $40,000, which was also its book value. his share of s corporation assets included depreciable equipment with a basis of $10,000 and a fair market value of $25,000. which of the following statements is correct regarding the sale by T?

A) if T was a material participant in the LLC entity, his taxable capital gain for regular tax purposes is $45,000.

B) if T was a material participant in the LLC entity, he has a $15,000 Category 3 gain from the depreciation recapture from equipment used in the business.

C) if T was material participant in the LLC entity, he has a $45,000 Category 3 gain.

D) T has a $75,000 Category 3 gain, whether or not he was a material participant in the LLC entity.

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Answer #1

option B. Reason is as follows:

Here, stock $100000 cannot be included under the head capital gains as per the income tax act. So, we don't consider that.

Coming to the equpment the calculation is as follows :

a.fair market value of equipment = 25,000

b. basis(cost of acquisition) = 10000

net value (capital gain). (a-b) = 15000

Based on above calculation If T was a material participant in LLC entity, he has a $15000 capital gain.

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