Kristine owns all of the stock of a C corporation which owns the following asset

Question

Kristine owns all of the stock of a C corporation which owns the following assets.

* Potential § 1245 recapture of $45,000.
** Straight-line depreciation was used.

Her adjusted basis for her stock is $270,000. Calculate Kristine's recognized gain or loss and classify it as capital or ordinary if she sells her stock for $500,000.

a.$230,000 capital gain.

b.$230,000 ordinary income.

c.$110,000 ordinary income and $120,000 capital gain.

d.$115,000 ordinary income and $115,000 capital gain.

Adjusted
Basis Fair Market
Value Accounts receivable $ –0– $ 60,000 Inventory 20,000 30,000 Machinery and equipment* 50,000 90,000 Buildings** 120,000 170,000 Land 80,000 140,000 $270,000 $490,000

Explanation / Answer

Kristine has sold her share of stock. Sale of stock is treated as Sale of capital Asset.

Hence the amount of gain for her is

$500000-$270000 = $230000.

Answer - A - $230000 Capital Gain

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