31. Leslie trades a piece of real estate worth $200,000 that he bought several y

Question

31. Leslie trades a piece of real estate worth $200,000 that he bought several years agp for $10,000. He receives land in Florida worth $185,000 and $15,000 in cash. Both pieces of land are used in a trade or business a) What is Leslie's amount realized? b) What gain or loss if any does Leslie realize? c) What gain or loss if any does Leslie recognize? d) What is Leslie's adjusted basis in the new real estate? 32. Luigi has a building used in his business that he bought for $300,000. He has correctly taken $40,000 of depreciation on the building. The building is wor and it gets destroyed by a stor th $450,000 m in year 1. Leroy gets cash from the insurance company in year 2 of $450,000, and in year 3 he buys a replacement building for $435,000 a) How much gain or loss does Luigi recognize if any? b) What is his adjusted basis in the new building? 33. Adam bought a piece of machinery that was used in his business for several years. His cost was $100,000. He properly took depreciation of $40,000. He sells the property this year for $68,000. a) What is the amount of Adam's gain or loss? b) What is the character of the gain or loss (is it capital gain/loss, section 1231 gain/loss, or ordinary gain/loss)? THE END Congratulations and best of luck to the graduates

Explanation / Answer

Solution 33

Adam bought machinery that was used in his business for several years.

Cost was 100,000($)

Depreciation = 40000($)

Sale price of the property = 68,000($)

Gain/Loss = Sale Price - (Cost - Depreciation) = 68,000 - (100,000- 40,000)

=8,000($) {Gain}

B:- Section 1231 - it includes real or depreciable business property held for over a year. Now property includes buildings, machinery, land, timber and other natural resources.

Therefore if there's any gain on property fitting section 1231 is more than the adjusted basis and depreciation, the income is treated as capital gains.

Hence, the above gain is a capital gain as the machinery fits in the section 1231 property deifinition.

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