Question

Firm OCS sold business equipment with a $24.500 Initial cost basis and $11,365 accumulated tax depreciation. In each of the following cases, compute OCS's recaptured ordinary income and Section 1231 gain or loss on sale. (Losses should be indicated with a minus sign. Leave no cell blank. Enter "O" for cells that do not have an amount.) a. Amount realized was $10.900. b. Amount realized was $13,900. c. Amount realized was $18.400. d. Amount realized was $27.900. X Answer is complete but not entirely correct. 0 $ $ Recaptured ordinary income of Section 1231 gain or loss) Recaptured ordinary income of Section 1231 gain or loss) Recaptured ordinary income of Section 1231 gain or loss) Recaptured ordinary income of Section 1231 gain or loss) (2235) 765 0 5,265 0 9,735 $ $ 3.400

Answer 1

Recaptured ordinary income = Sale value - Book value but restricted to accumulated depreciation till date of sale NOTE: If sale value is less than or equal to book value, there will be no recaptured income. Section $1231 gain (loss) = Any amount realized in excess of cost basis of the asset sold. Cost basis of the asset sold Less: Accumulated depreciation Book value of the asset sold Sale value of the asset Total gain (loss) on sale of asset Case-(a) $24,500 $11,365 $13,135 $10,900 -$2,235 Case-(b) $24,500 $11,365 $13,135 $13,900 $765 Case-(c) $24,500 $11,365 $13,135 $18,400 $5,265 Case-(d) $24,500 --> (a) $11,365 --> (b) $13,135 --> (c) = (a) - (b) $27,900 --> (d) $14,765 --> (p) = (d) - (c) Therefore, Recaptured ordinary income $0 $765 $5,265 $11,365 --> (q) [Ref: Recaptured ordinary income's formula and NOTE] Section $1231 gain (loss) ($2,235) SO SO $0 $3.400 $3,400 -> (p) - (q) > Inl.