TP owns and operates a resort hotel in a small town. As a courtesy to his custom

Question

TP owns and operates a resort hotel in a small town. As a courtesy to his customers, TP owns a passenger van which he uses to pick-up and deliver customers to and from the local airport. TP purchased the passenger van for $50,000 several years ago.

This year, TP sold the passenger van for $20,000 so he could purchase a brand new larger van. At the time of the sale, TP had claimed $42,500 as depreciation deductions attributable to the passenger van.

Assuming no other gains or losses, what is the character of the gain or loss TP realized?

Select one:

A. ordinary

B. short-term capital

C. long-term capital

D. depreciable

Explanation / Answer

Section 1245 Assets comprise personal property used in trade or business and held for over 12 months.

Ordinary Gains (not loss) - Recapture all Accumulated depreciation (lesser of gain recognized or all accumulated depreciation)

Excess gain is Section 1231 gain and any loss is Section 1231 loss

-------------------------------------------------

Cost = 50,000

Accumulated depreciation = 42,500

Carrying value = Cost - Accumulated depreciation

= 50,000 - 42,500

= 7,500

Gain recognized = Selling price - Carrying value

= 20,000 - 7,500

= 12,500

Ordinary loss = lesser of gain recognized or all accumulated depreciation = 12,500

The answer is A.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.