Question

This year, Sigma Inc. generated $635,000 income from its routine business operations. In addition, the corporation sold the following assets, all of which were held for more than 12 months.

	Initial Basis		Acc. Depr.*		Sale Price
Marketable securities	$	163,200	$	0	$	57,000
Production equipment		108,800		87,040		37,750
Business realty:
Land		186,000		0		207,000
Building		273,000		81,900		279,000

*Through date of sale.

1. Compute Sigma’s taxable income assuming that it used the straight-line method to calculate depreciation on the building and has no nonrecaptured Section 1231 losses.
2. Recompute taxable income assuming that Sigma sold the securities for $170,400 rather than $57,000

Answer 1

Production Equipment Business land Business Building SIGMA'S GAIN AND LOSSES FROM SALE OF ASSETS Amount realized Adjusted Basis Realized gain/loss Ordinary Gain Section 1231 Gain/loss 37750 21760 159901 15990 207000 186000 21000 21000 279000 191100 879001 16380 71520 32370 92520 635000 32370 92520 ANet income from operations Ordinary income from sale of business assets Section 1231 gain (as capital gain) Sale of marketable security amount realized Less: Basis Loss deductible up to section 1231 gain Taxable income 57000 -163200 -106200 -92520 667370 635000 32370 92520 B Net income from operations Ordinary income from sale of business assets Section 1231 gain (as capital gain) Sale of marketable security amount realized Less: Basis capital Gain Taxable income 170400 -163200 7200 7200 767090