Question

78. LO.8, 9, 10 Larry is the sole proprietor of a trampoline shop. During 2018, the fol- lowing transactions occurred: Unimproved land adjacent to the store was condemned by the city on February 1 The condemnation proceeds were $15,000. The land, acquired in 1986, had an allocable basis of $40,000. Larry has additional parking across the street and plans to use the condemnation proceeds to build his inventory. A truck used to deliver trampolines was sold on January 2 for $3,500. The truck was purchased on January 2, 2014, for $6,000. On the date of sale, the adjusted basis was zero. Larry sold an antique rowing machine at an auction. Net proceeds were $4.900 The rowing machine was purchased as used equipment 17 years ago for $5,200 and is fully depreciated. Larry sold an apartment building for $300,000 on September 1. The rental prop- erty was purchased on September 1, 2015, for $150,000 and was being depreci- ated over a 27.5-year life using the straight-line method. At the date of sale, the adjusted basis was $124,783. Larry's personal yacht was stolen on September 5. The yacht had been purchased in August at a cost of $25,000. The fair market value immediately preceding the theft was $19,600. Larry was insured for 50% of the original cost, and he received $12,500 on December 1 Larry sold a Buick on May 1 for $9,600. The vehicle had been used exclusively for personal purposes. It was purchased on September 1, 2014, for $20,800. Larry's trampoline stretching machine (owned two years) was stolen on May 5, but the business's insurance company will not pay any of the machine's value because Larry failed to pay the insurance premium. The machine had a fair market value of $8,000 and an adjusted basis of $6,000 at the time of theft.

Answer 1

Part A

Transaction 1

Condemnation Proceeds	$15000
Less: Allocable basis	(40000)
Recognized §1231 loss	$(25000)

Transaction 2

Recognized ordinary income under §1245 = $3500 (depreciation = $6,000. no adjusted basis. selling price of truck on January 2 = $3,500)

Transaction 3

Sale value	$4900
Less: Adjusted basis	0
Recognized gain	$4900

Transaction 4

Recognized gain under section 1231 = Sale value – Adjusted basis = $300,000 - $124,783 = $175,217

Transaction 5:

recognized loss (personal casualty loss) = ($19,600-$12,500-$100) = $7000

Transaction 6:

No gain is recognized as the auto was used for personal purposes.

Transaction 7:

recognized loss = $6,000 (adjusted basis)

Part B

Section 1245 Recapture= 3900+4900 = 8400

Casualty and Theft Loss= -6000

Section 1231 Gain = -25000+175217 = $150217

Ordinary income recaptured	8400
Long-term capital gain	150217
Other sources	102000
Business casualty loss	(6000)
AGI	$254617