Question

1Kate bought a residential rental property for $500,000. She reported a total of $100,000 straight-line depreciation. Kate sold the building in 2019 for $425,000. What are the immediate tax consequences of the sale? (Do not consider Kate's other transactions.) If Kate's rental activity is a production-of-income (investment) activity, she will report a $25,000 long-term capital gain. I. If Kate's rental activity is a trade or business, she will report $25,000 of unrecaptured Section 1250 gain. I. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. None of the statements are correct. 2. Dallas Wildcat Drilling Co. sells an oil-drilling rig for $3,000,000. The drilling rig was purchased in 2013 for $2,000,000. Depreciation deductions of $1,200,000 have been taken up to the time of sale. What amount and character of gain will Dallas report from the sale of this asset?

Answer 1

③ kate bought the house for residential purpose for $500UDO She claimed a depreciation of 8100000 Book value of house $50000 - $100000 = 400000 This house is sold for $4250000 Gain on Sale = $425.000 – $400000 $25000 This activity con to ansaction is treated as investment activity, since house is an asset for kate but not a good. Therefore A) Only statement I is correct. (2) Book value of Drilling machine __$2000000 - $1200000 = $ 800000 This is sold for $3,000,000 - Gain on sale of machine is $ 3000000 – $8000000 I $2200000/ TO & Amount of gain to be reported on the sale of asset is $2200000 The gain is treatead as ordinary in nature and is taxed at ordinary fare rates.