Ralph owns a business printing press with a $170,000 adjusted basis; he paid $25

Question

Ralph owns a business printing press with a $170,000 adjusted basis; he paid $250,000 for the printing press and it is currently worth $195,000. Consider each of the following situations:

a. Ralph sells the printing press for its FMV. What is the amount and character of the gain recognized by Ralph?

b. Ralph gives the printing press to his son Mickey to use in his printing business (he does not owe any gift tax on the gift). Mickey decides to sell it for the FMV instead of using it. What is the amount and character of gain recognized by Mickey?

c. Ralph dies suddenly and his son Mickey inherits the property. What is Mickey’s basis in property? What happens to the § 1245 depreciation recapture potential?

Explanation / Answer

a. Amount of gain = sale price - book value = 250,000-170,000 = 80,000. Considered to be capital gains.

B. Sine the asset was gifted without owing gift taxes, Mickey'scost basis will be the adjusted basis for Ralph.

Gain = 250000-170000=80,000 of capital gains.

C. On inheritence, mickey will receive a step-up in the cost of the asset , equal to FMV of asset =,195,000

1245 depreciation recapture doesnot applies to properties received as inheritence upon death of father.

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