Question

Miguel receives tangible personal property as an inheritance in 2015. The property was depreciated by the deceased (Miguel's father), and Miguel will also depreciate it. At the date of the deceased's death, the property was worth $532,000. The deceased had purchased it for $900,000 and taken $523,000 of depreciation on the property. Miguel takes $223,000 of depreciation on the property before selling it for $482,000 in 2017.

.   Indicate whether the following statements are "True" or "False" regarding the tax status when Miguel sells the property.

• Any gain Miguel has will be treated as long-term capital gain. ----------- • Miguel's basis for the asset is $532,000. ----------- • The property is a § 1231 asset for Miguel.    ----------- • Any recapture potential does not carry over to Miguel. ------------

b.   If an amount is zero, enter "0".

Miguel has a gain of $ --------- as a result of the sale, of which $ --------- is treated as ----------- due to § 1245 and $----------- is treated as § 1231 gain.

*Comment of "Taxation" is unclear. I do not have an option for the subject of taxation. This material in TAX INCOME ACCOUNTING.

Answer 1

Miguel's basis in the property = $532000, the fair value of the property on the date of acquisition.

Depreciation claimed by Miguel = $223000

Book value of property at the time of sale = $532000 - 223000 = $309000

Sale consideration = $482000

Capital gains in the hands of Miguel = 482000 - 309000 = $173000

1. Any gain Miguel has will be treated as long-term capital gain. True In this situation, the only gain that Miguel will record in his books and get taxed for it is on the time of sale of property inherited. 2. Miguel's basis for the asset is $532,000 True As we have discussed above, the fair value of the property at the time of inheritance is the basis for property in Miguel’s hands 3. The property is a § 1231 asset for Miguel True Section 1231 property includes buildings, machinery, land, timber, and other natural resources, unharvested crops, cattle, livestock and leaseholds that are at least a year old but does not include poultry, trademark or inventory

4. Any recapture potential does not carry over to Miguel   True Now that depreciation has been claimed by Miguel’s father and then later by Miguel no other recapture potential exists for him. b. Miguel has a gain of $173000 as a result of the sale, of which $ 0 is treated as ordinary gain due to § 1245 and $173000 is treated as § 1231 gain