Question

Gary Farmer had the following sales of business property during the 2018 tax year:

1. Sold land acquired on December 3, 2007, at a cost of $24,000, for $37,000 on January 5, 2018. The cost of selling the land was $500, and there was no depreciation allowable or capital improvements made to the asset over the life of the asset.
2. Sold a business computer with an adjusted basis of $20,700 that was acquired on April 5, 2015. The original cost was $25,875, and accumulated depreciation was $5,175. The computer was sold on May 2, 2018, for $14,000, resulting in a $6,700 loss.
3. Sold equipment on July 22, 2018 for gross proceeds of $16,000. The equipment was acquired on October 21, 2017 at a cost of $25,000 and accumulated depreciation was $4,300 at the time of the sale. Gary used an equipment broker on this sale and paid a sales commission of $1,600.

Calculate Gary’s net gain or loss and determine the character as either capital or ordinary (ignore any depreciation recapture).

Amount of Gain or Loss Gain or Loss Land $____________ Gain Computer $___________ Loss Equipment $____________ Loss

The land and computer  are Section 1231 properties, resulting in a net Section 1231 gain  of $. This is treated as a net long-term capital gain . The equipment  is treated as an ordinary asset . As such it results in an ordinary loss  of $._______________

Answer 1

	Amount of gain or loss	Gain or loss
Land	12500	Gain
Computer	6700	Loss
Equipment	8300	Loss

Land
Selling price	37000
Less - cost of selling	500
Net Selling price	36500
Purchase cost	24000
Gain on sale of land	12500
Computer
Cost	25875
Accumulated depreciation	5175
Net book value	20700
Sale price	14000
Net loss on sale	-6700
Equipment
Cost	25000
Accumulated depreciation	4300
Net book value	20700
Selling price	14000
Less - cost of sale	1600
Net selling price	12400
Net loss on sale	-8300

The land and computer  are Section 1231 properties, resulting in a net Section 1231 gain  of $. This is treated as a net long-term capital gain . The equipment  is treated as an ordinary asset . As such it results in an ordinary loss  of $. 3000