Question

Rex buys machinery in 2016 for use in his business. The cost is $1,000,000. Depreciation

claimed before sale is $680,000. The machinery is sold in 2018 for $540,000. Complete:

Total recognized gain <loss>
Section 1231 gain <loss>
Section 1245 Recapture

Answer 1

Total recognised gain =	220,000	$
Section 1245 Gain                =	220,000	$
Section 1231 Recapture =	0	$
Cost of the machine	1,000,000
Less: Depreciation	680,000
Adjusted tax basis/Book Value	320,000
Sale Value of the machine	540,000
Gain on sale	220,000
(540,000 - 320,000)
Gain on Sale		220,000
Section 1245 Gain (Depreciation Recapture)
Lower of :
(i) Depreciation allowed	680,000
(ii) Gain realised on sale	220,000
Section 1245 Gain		220,000
Section 1231 Gain (Balance)		-
(220,000 - 220,000)