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.

Assume that instead of selling the passenger van, TP gave the van to his brother as a gift. His brother used the van for personal purposes and sold it two years later for $60,000.

What type of asset is the passenger van in the hands of TPs brother?

1) capital asset

2) non-capital asset

3)Section 1221 asset

4)Section 1231 asset

Select one:

A. (1) only is correct

B. (1) and (3) only are correct

C. (1) and (4) only are correct

D. (2) and (4) only are correct

Explanation / Answer

Choice "A" is correct.

In the hands of TPs brother, ths passenger van is only a capital asset because his brother has not used it for trade or business, rather he is using it for his own personal purposes. This is the main reason with regard to all other options are incorrect.

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