Question

Siena Industries (a sole proprietorship) sold three § 1231 assets during 2018. Data on these property dispositions are as follows:

Asset Cost Acquired Depreciation Sold For Sold On Rack $100,000 10/10/14 $62,000 $85,000 10/10/18 Forklift 35,000 10/16/15 23,000 5,000 10/10/18 Bin 87,000 03/12/17 34,000 60,000 10/10/18

If an amount is zero, enter 0.

a. Determine the amount and the character of the recognized gain or loss from the disposition of each asset.

Asset Character of Gain or Loss Total Amount of Gain or Loss Amount of § 1245 Recapture Balance of Gain or Loss Rack (long-term capital gain/ ordinary income/ § 1231 loss) $ $ $ Forklift (long-term capital gain/ § 1231 gain/ § 1231 loss) $ $ $ Bin   (long-term capital gain/ ordinary income/ § 1231 loss) $ $ $

Siena has $ __________of (long-term capital gain/ ordinary income) due to § 1245 recapture and $__________ of § 1231 (gain/loss) .

b. Assuming that Siena has no nonrecaptured net § 1231 losses from prior years, analyze these transactions and determine the amount (if any) that will be treated as a long-term capital gain.
$__________

Answer 1

A.
ASSET	COST	DEPRECIATION	NET VALUE	SALES PRICE	GAIN/LOSS
Rack	100000	62000	38000	85000	47000
Forklift	35000	23000	12000	5000	-7000
Bin	87000	34000	53000	60000	7000
ASSET	Character of Gain or Loss	Total Amount of Gain or Loss	Amount of 1245 recapture	Balance of Gain or loss
Rack	Ordinary Gain	47000	47000	0
Forklift	1231 loss	-7000	0	-7000
Bin	Ordinary Gain	7000	7000	0
Since, Gain on Rack is less than Depreciation amount, it is an ordinary gain according to 1245.
Loss on forklift is an ordinary loss under 1231.
Since, Gain on Bin is less than Depreciation amount, it is an ordinary gain according to 1245.
Siena has $54000 of ordinary income due to Section 1245 recapture and $7000 of Section 1231 loss.
B.
LTCG = 0. Since, the gain does not exceed the depreciation amount, the recapture provision does not come into play as there is not capital gain. All gains are ordinary gains and LTCG = 0.