Question

This year, Sigma Inc. generated $636,000 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 $ 157,600 $ 0 $ 74,000 Production equipment 115,600 92,480 36,000 Business realty: Land 235,500 0 241,750 Building 263,000 78,900 218,000 *Through date of sale.

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.

*Answer for tax income is not 668,605

Answer 1

Solution ;

Sigma's gain and losses from sales of business assets are computed and characterized as follows .

	Amount realized	Adjusted basis	Realized gain(loss)	Ordinary gain	Section 1231 gain(loss)
Production equipment	36000	23120	12880	12880
Business land	241750	235500	6250		6250
Business building	218000	184100	33900	15780*	18120
				28660	24370

*Building ordinary income is 20% recapture of the lesser of accumulated depreciation or

the realized gain .

Net income from operations		636,000
Ordinary income from sales of business assets		28660
Section 1231 gain (treated as capital gain)		24370
Sales of marketable securities:
Amount realized	74000
Basis	(157600)
Realized loss	(83600)
Deductiable loss limited to section 1231 gain		(24370)
Taxable income		664660