This year, Sigma Inc. generated $627,000 income from its routine business operations. In addition, the corporation...

This year, Sigma Inc. generated $627,000 income from its routine business operations. In addition, the corporation sold the following assets, all of which were held for more than 12 months.

	InitialBasis		Acc.Depr.*		Sale Price
Marketable securities	$	153,400	$	0	$	72,750
Production equipment		121,600		97,280		35,250
Business realty:
Land		168,750		0		190,000
Building		255,000		76,500		211,000

*Through date of sale.

Compute Sigma’s taxable income assuming that it used the straight-line method to calculate depreciation on the building and has no nonrecaptured Section 1231 losses. taxable income (???) I post before but was not correct.

Expert Solution

Sigma’s gains and losses from sales of business assets are computed below:
	Amount Realized	Adjusted Basis (Initial Basis - Acc. Depreciation)	Realized Gain/(Loss)	Ordinary Gain	Section 1231 Gain/(Loss)
Production equipment	$35,250.00	$24,320.00	$10,930.00	$10,930.00
Business land	$190,000.00	$168,750.00	$21,250.00		$21,250.00
Business building	$211,000.00	$178,500.00	$32,500.00	$6,500.00	$26,000.00
Total				$17,430.00	$47,250.00
Building ordinary income is 20 percent recapture of the lesser of accumulated depreciation or the realized gain

Net income from operations		$627,000.00
Ordinary income from sales of business assets		$17,430.00
Section 1231 gain (treated as capital gain)		$47,250.00
Sale of marketable securities:
Amount realized	$72,750.00
Basis	-$153,400.00
Realized Loss	-$80,650.00
Deductible loss limited to Section 1231 gain		-$47,250.00
Taxable income		$644,430.00

ekkarill92 answered 1 year ago

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