Question

Firm OCS sold business equipment with a $28,000 initial cost basis and $14,515 accumulated tax depreciation. In each of the following cases, compute OCS’s recaptured ordinary income and Section 1231 gain or loss on sale. (Losses should be indicated with a minus sign. Leave no cell blank. Enter "0" for cells that do not have an amount.)

Required:

1. Amount realized was $11,600.

2.Amount realized was $14,000.

3. Amount realized was $19,100.

4. Amount realized was $32,100.

Answer 1

Recaptured ordinary income = Sales Value (amount realized ) - Book value but restricted to accumulated depreciation till date of sales

Note: if amount realized is less than or equal to book value, there will be no recaptured income

Section 1231 gain or (loss) = Any amount realized in excess of cost basis of the assets sold

Cost basis of assets sold = 28000

Less: Accumulated depreciation = 14515

Book value of assets sold = 13485 for each case are same

1.

Amount realized	11600
Less: Book value of assets sold	13485
Gain or (loss) on sales	-1885
Therefore:-
Recaptured ordinary income	$0
Section 1231 gain or (loss)	-$1885

2.

Amount realized	14000
Less: Book value of assets sold	13485
Gain or (loss) on sales	515
Therefore:-
Recaptured ordinary income	$515
Section 1231 gain or (loss)	$0

3.

Amount realized	19100
Less: Book value of assets sold	13485
Gain or (loss) on sales	5615
Therefore:-
Recaptured ordinary income	$5615
Section 1231 gain or (loss)	$0

4.   

Amount realized	32100
Less: Book value of assets sold	13485
Gain or (loss) on sales	18615
Therefore:-
Recaptured ordinary income	$14515
Section 1231 gain or (loss) (18615 - 14515)	$4100