Chapter 10 - Property Dispositions

Chapter 10 Property: Dispositions SOLUTIONS MANUAL Problems

33. [LO 1] Shasta Corporation sold a piece of land to Bill for $ !"000. Shasta #o$%ht the land t&o years a%o for $30"'00. (hat %ain or loss does Shasta reali)e on the transaction* $14,400, computed as follows: Description Amount Explanation (1) Amount Realized $45,000 (2) Adjusted Basis 0,!00 Gain (Loss) Realized $14,400 (1) " (2) 3 . [LO 1] Lassen Corporation sold a +achine to a +achine dealer for $,!"000. Lassen #o$%ht the +achine for $!!"000 and has clai+ed $1!"000 of depreciation e-pense on the +achine. (hat %ain or loss does Lassen reali)e on the transaction* ($15,000) loss, computed as follows: Description Amount Explanation (1) Amount Realized $25,000 #i$en (2) Adjusted Basis 40,000 $55,000 o%i&inal 'asis ( $15,000 accumulated dep%eciation Gain (Loss) Realized ($15,000) (1) " (2) 3!. [LO ,] .dentify each of (hite Corporation/s follo&in% assets as an ordinary" capital" or 01,31 asset. a. 1&o years a%o" (hite $sed its e-cess cash to p$rchase a piece of land as an in2est+ent. #. 1&o years a%o" (hite p$rchased land and a &areho$se. .t $ses these assets in its #$siness. c. 3an$fact$rin% +achinery (hite p$rchased earlier this year. d. .n2entory (hite p$rchased 13 +onths a%o" #$t is ready to #e shipped to a c$sto+er. e. Office e4$ip+ent (hite has $sed in its #$siness for the past three years. f. 1"000 shares of stoc5 in Blac5 corporation that (hite p$rchased t&o years a%o #eca$se it &as a %ood in2est+ent. %. 6cco$nt recei2a#le fro+ a c$sto+er &ith ter+s ,710 net 30. h. 3achinery (hite held for three years and then sold at a loss of $10"000. a) *apital, 'ecause it is +eld fo% in$estment) ') ,+e land and 'uildin& a%e 'ot+ -12 1 p%ope%t. 'ecause /+ite uses t+e assets in its t%ade o% 'usiness and +as +eld t+e assets p%ope%t. fo% mo%e t+an a .ea%) c) 0%dina%., t+e p%ope%t. is o%dina%. e$en t+ou&+ it is used in a t%ade o% 'usiness 'ecause it +as 'een +eld fo% less t+an one .ea%) 0nce /+ite +as +eld t+e mac+ine%. fo% mo%e t+an a .ea%, it will 'ecome -12 1 p%ope%t.) d) 0%dina%., in$ento%. is +eld in t+e o%dina%. cou%se of 'usiness)

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Chapter 10 - Property Dispositions

e) f) &) +)

-12 1, t+e p%ope%t. is used in a t%ade o% 'usiness and +eld fo% mo%e t+an one .ea%) *apital, 'ecause it is +eld fo% in$estment) 0%dina%., accounts %ecei$a'le a%e c%eated in t+e o%dina%. cou%se of 'usiness) -12 1, t+e p%ope%t. is used in a t%ade o% 'usiness and +eld fo% mo%e t+an one .ea%)

38. [LO 3" ] .n year 0" Lon%&orth Partnership p$rchased a +achine for $ 0"000 to $se in its #$siness. .n year 3" Lon%&orth sold the +achine for $3!"000. Bet&een the date of the p$rchase and the date of the sale" Lon%&orth depreciated the +achine #y $,,"000. a. (hat is the a+o$nt and character of the %ain Lon%&orth &ill reco%ni)e on the sale* #. (hat is the a+o$nt and character of the %ain Lon%&orth &ill reco%ni)e on the sale if the sale proceeds &ere increased to $ !"000* c. (hat is the a+o$nt and character of the %ain Lon%&orth &ill reco%ni)e on the sale if the sale proceeds &ere decreased to $1!"000* a) $11,000 o%dina%. income) Description Amount Explanation (1) Amount Realized $ 5,000 #i$en (2) 0%i&inal Basis 40,000 #i$en ( ) Accumulated 2ep%eciation 22,000 #i$en (4) Adjusted Basis 13,000 (2) ( ( ) (5) #ain4(5oss) Reco&nized $11,000 (1) " (4) ( ) !rdinar" income (#1$45 depreciation recapture) $1%,000 5esse% of ( ) o% (5) #1$&1 'ain $0 (5) " (!) Because t+e enti%e &ain is caused '. dep%eciation deductions, t+e enti%e &ain is t%eated as o%dina%. income unde% -1245) ') $21,000 &ain ($22,000 o%dina%. and $5,000 -12 1) computed as follows: Description Amount Explanation (1) Amount Realized $45,000 #i$en (2) 0%i&inal Basis 40,000 #i$en ( ) Accumulated 2ep%eciation 22,000 #i$en (4) Adjusted Basis 13,000 (2) ( ( ) (5) #ain4(5oss) Reco&nized $21,000 (1) " (4) ( ) !rdinar" income (#1$45 depreciation recapture) $$$,000 5esse% of ( ) o% (5) #1$&1 'ain $5,000 (5) " (!) 0nl. t+e &ain caused '. dep%eciation is t%eated as o%dina%. income unde% -1245, t+e %emainin& &ain is -12 1) c) ($ ,000) o%dina%. loss, computed as follows: Description (1) Amount Realized (2) 0%i&inal Basis ( ) Accumulated 2ep%eciation (4) Adjusted Basis (5) #ain4(5oss) Reco&nized
10-,

Amount $15,000 40,000 22,000 13,000 ($ ,000 )

Explanation #i$en #i$en #i$en (2) ( ( ) (1) " (4)

Chapter 10 - Property Dispositions

( ) !rdinar" income (#1$45 depreciation recapture)

$0 5esse% of ( ) o% (5) ($&,000 #1$&1 loss ) (5) " (!) 0nl. &ains a%e t%eated as o%dina%. income unde% -1245, an. loss is -12 1) 39. [LO 3" ] :ay#$rn Corporation has a #$ildin% that it #o$%ht d$rin% year 0 for $;!0"000. .t sold the #$ildin% in year !. D$rin% the ti+e it held the #$ildin% :ay#$rn depreciated it #y $100"000. (hat is the a+o$nt and character of the %ain or loss :ay#$rn &ill reco%ni)e on the sale in each of the follo&in% alternati2e sit$ations* a. :ay#$rn recei2es $; 0"000. #. :ay#$rn recei2es $900"000. c. :ay#$rn recei2es $800"000. a) $13,000 o%dina%. income and $12,000 -12 1 &ain computed as follows: Description Amount Explanation (1) Amount Realized $340,000 #i$en (2) 0%i&inal Basis 350,000 #i$en ( ) Accumulated 2ep%eciation 100,000 #i$en (4) Adjusted Basis 150,000 (2) " ( ) (5) #ain4(5oss) Reco&nized $60,000 (1) " (4) (!) -261 %ecaptu%e pe%centa&e 207 -261 (1) -261 %ecaptu%e 'ase 60,000 5esse% of (5) o% ( ) (3) #$(1 recapture (ordinar" income) $1),000 (!) 8 (1) #1$&1 'ain $%$,000 (5) " (3) ') $20,000 o%dina%. income and $1 0,000 -12 1 &ain computed as follows: Description Amount Explanation (1) Amount Realized $600,000 #i$en (2) 0%i&inal Basis 350,000 #i$en ( ) Accumulated 2ep%eciation 100,000 #i$en (4) Adjusted Basis 150,000 (2) " ( ) (5) #ain4(5oss) Reco&nized $150,000 (1) " (4) (!) -261 %ecaptu%e pe%centa&e 207 -261 (1) -261 %ecaptu%e 'ase 100,000 5esse% of (5) o% ( ) (3) #$(1 recapture (ordinar" income) $$0,000 (!) 8 (1) #1$&1 'ain $1&0,000 (5) " (3) c) $(50,000) o%dina%. loss computed as follows: Description (1) Amount Realized (2) 0%i&inal Basis ( ) Accumulated 2ep%eciation (4) Adjusted Basis (5) #ain4(5oss) Reco&nized (!) -261 %ecaptu%e pe%centa&e (1) -261 %ecaptu%e 'ase Amount $100,000 350,000 100,000 150,000 ($50,000) 207 $0 Explanation #i$en #i$en #i$en (2) " ( ) (1) " (4) -261 5esse% of (5) o% ( )

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Chapter 10 - Property Dispositions

(3) #$(1 recapture (ordinar" income) $0 (!) 8 (1) #1$&1 loss ($50,000) (5) " (3) 0. [LO 3" ] 3oran o&ns a #$ildin% he #o$%ht d$rin% year 0 for $1!0"000. <e sold the #$ildin% in year '. D$rin% the ti+e he held the #$ildin% he depreciated it #y $3,"000. (hat is the a+o$nt and character of the %ain or loss 3oran &ill reco%ni)e on the sale in each of the follo&in% alternati2e sit$ations* a. 3oran recei2ed $1 !"000. #. 3oran recei2ed $180"000. c. 3oran recei2ed $110"000. a) $21,000 un%ecaptu%ed section 1250 &ain, w+ic+ is -12 1 &ain ta8ed at ma8imum %ate of 257, computed as follows: Description (1) Amount Realized (2) 0%i&inal Basis ( ) Accumulated 2ep%eciation (4) Adjusted Basis (5) #ain4(5oss) Reco&nized (!) *nrecaptured #1$50 'ain (and #1$&1 'ain) (1) Remainin& -12 1 &ain +otal #1$&1 'ain Amount $145,000 150,000 2,000 113,000 $21,000 Explanation #i$en #i$en #i$en (2) " ( ) (1) " (4)

$$%,000 5esse% of (5) o% ( ) $0 (5) " (!) $$%,000 (!) 9 (1)

') -12 1 &ain of $52,000) 0f t+e $52,000, $ 2,000 is un%ecaptu%ed -1250 &ain su'ject to a ma8imum 257 ta8 %ate and t+e %emainin& $20,000 is -12 1 &ain su'ject to a ma8imum %ate of 157) :ee t+e followin& calculations: Description (1) Amount Realized (2) 0%i&inal Basis ( ) Accumulated 2ep%eciation (4) Adjusted Basis (5) #ain4(5oss) Reco&nized (!) *nrecaptured #1$50 'ain (and #1$&1 'ain) (1) Remainin& -12 1 &ain +otal #1$&1 'ain Amount $110,000 150,000 2,000 113,000 $52,000 Explanation #i$en #i$en #i$en (2) " ( ) (1) " (4)

$&$,000 5esse% of (5) o% ( ) 20,000 (5) " (!) $5$,000 (!) 9 (1)

c) -12 1 loss of ($3,000), calculated as follows: Description (1) Amount Realized (2) 0%i&inal Basis ( ) Accumulated 2ep%eciation Amount $110,000 150,000 2,000 Explanation #i$en #i$en #i$en

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Chapter 10 - Property Dispositions

(4) Adjusted Basis (5) #ain4(5oss) Reco&nized (!) *nrecaptured #1$50 'ain (and #1$&1 'ain) (1) Remainin& -12 1 loss +otal #1$&1 loss

113,000 ($3,000)

(2) " ( ) (1) " (4)

$0 5esse% of (5) o% ( ) ($3,000) (5) " (!) ($),000) (!) 9 (1)

,. [LO ] L$5e sold a #$ildin% and the parcel of land the #$ildin% is #$ilt on to his #rother at fair +ar5et 2al$e. 1he fair +ar5et 2al$e of the #$ildin% &as deter+ined to #e $3,!"000= L$5e #$ilt the #$ildin% se2eral years a%o at a cost of $,00"000. L$5e had clai+ed $ !"000 of depreciation e-pense on the #$ildin%. 1he fair +ar5et 2al$e of the land &as deter+ined to #e $,10"000= L$5e p$rchased the land +any years a%o for $130"000. L$5e/s #rother &ill $se the #$ildin% in his #$siness. a. (hat is the a+o$nt and character of L$5e/s reco%ni)ed %ain or loss on the #$ildin%* #. (hat is the a+o$nt and character of L$5e/s reco%ni)ed %ain or loss on the land* a) $110,000 o%dina%. income, computed as follows: Description Amount Explanation (1) Amount Realized $ 25,000 #i$en (2) 0%i&inal Basis 200,000 #i$en ( ) Accumulated 2ep%eciation (45,000) #i$en (4) Adjusted Basis 155,000 (2) 9 ( ) !rdinar" Gain,(Loss) Reco'nized under #1$&($1%0,000 (1) " (4) ;5u<e must %eco&nize o%dina%. income on t+e sale of t+e 'uildin& unde% -12 6 'ecause (1) +e sold it at a &ain to a %elated pa%t. (+is '%ot+e%) and (2) t+e asset is a dep%ecia'le asset in t+e +ands of t+e %elated pa%t.='ecause +is '%ot+e% will use t+e p%ope%t. in +is 'usiness, +e is entitled to dep%eciate it) ') $30,000 -12 1 &ain, computed as follows: Description (1) Amount Realized (2) 0%i&inal Basis ( ) Accumulated 2ep%eciation (4) Adjusted Basis #1$&1 Gain Reco'nized Amount $210,00 0 1 0,000 0 1 0,000 $)0,000 Explanation #i$en #i$en #i$en (2) ( ( ) (1) " (4)

-1,39 is not applica#le for the land #eca$se it is not deprecia#le to the #$yer. . [LO !] >Plannin%? 6r$na" a sole proprietor" &ants to sell t&o assets that she no lon%er needs for her #$siness. Both assets 4$alify as 01,31 assets. 1he first is +achinery and &ill

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Chapter 10 - Property Dispositions

%enerate a $10"000 01,31 loss on the sale. 1he second is land that &ill %enerate a $8"000 01,31 %ain on the sale. 6r$na/s ordinary +ar%inal ta- rate is 30 percent. a. 6ss$+in% she sells #oth assets in Dece+#er of year 1 @the c$rrent yearA" &hat effect &ill the sales ha2e on 6r$na/s ta- lia#ility* #. 6ss$+in% that 6r$na sells the land in Dece+#er of year 1 and the +achinery in Ban$ary of year ," &hat effect &ill the sales ha2e on 6r$na/s ta- lia#ility for each year* c. C-plain &hy sellin% the assets in separate years &ill res$lt in ta- sa2in%s for 6r$na. a) A%una>s ta8 will dec%ease '. ($600)) Because t+e%e is a net -12 1 loss of $ ,000, 'ot+ t+e &ain and loss will 'e c+a%acte%ized as o%dina%.) ./aracter #1$&1 loss0!rdinar" #1$&1 'ain0 !rdinar" +ax Rat Amount e +ax ($10,000 0 ($ ,000 ) 7 ) 0 $1,000 7 $2,100 ($600)

') A%una>s ta8 will dec%ease '. ($1,650)) Because t+e -12 1 &ain is %eco&nized in ?ea% 1, t+e &ain will 'e capital) ,+e -12 1 loss in ?ea% 2 will 'e o%dina%.) ./aracter #1$&1 'ain0.apital ( 1ear 1) #1$&1 loss0!rdinar" ( 1ear $) +ax Rat Amount e +ax 15 $1,000 7 $1,050 ($10,000 0 ($ ,000 ) 7 ) ($1,650 )

c) ,+e -12 1 %ules can 'e &amed if .ou unde%stand t+em) @i%st &ains and losses a%e netted) Aowe$e%, losses ma. offset o%dina%. income at t+e ma%&inal ta8 %ate, w+ile &ains can 'e %eco&nized at p%efe%ential %ates w+ic+ a%e lowe% t+an t+e ma%&inal ta8 %ate) :econd, t+e loo<('ac< %ules p%e$ent %eco&nizin& losses 'efo%e &ains wit+in a fi$e(.ea% pe%iod) Aowe$e%, &ains ma. 'e %eco&nized 'efo%e losses) Bf A%una %eco&nizes +e% &ain 'efo%e +e% loss, t+e -12 1 loo<('oo< %ules do not appl.) 0ne additional facto% to conside% is t+at t+e ta8 sa$in&s f%om t+e loss is dela.ed '. one .ea%) ,+us, if t+e ta8pa.e% is sensiti$e to t+e time $alue of mone., t+e dela. s+ould 'e conside%ed as well) !0. [LO '] Dase" an indi2id$al" p$rchased so+e property in Poto+ac" 3aryland" for $1!0"000 appro-i+ately 10 years a%o. Dase is approached #y a real estate a%ent representin% a client &ho &o$ld li5e to e-chan%e a parcel of land in Eorth Carolina for Dase/s 3aryland property.

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Chapter 10 - Property Dispositions

Dase a%rees to the e-chan%e. (hat is Dase/s reali)ed %ain or loss" reco%ni)ed %ain or loss" and #asis in the Eorth Carolina property in each of the follo&in% alternati2e scenarios* a. 1he transaction 4$alifies as a li5e-5ind e-chan%e and the fair +ar5et 2al$e of each property is $'8!"000. #. 1he transaction 4$alifies as a li5e-5ind e-chan%e and the fair +ar5et 2al$e of each property is $100"000. a) C$en t+ou&+ Dase +as a %ealized &ain of $525,000, t+e %eco&nized &ain is $0 'ecause t+e t%ansaction Eualifies as a li<e(<ind e8c+an&e and Dase did not %ecei$e an. 'oot) Dase %ecei$es a ca%%.o$e% 'asis of $150,000 in t+e Fo%t+ *a%olina p%ope%t. (t+e same 'asis Dase +ad in t+e Ga%.land p%ope%t.)) :ee t+e followin& computation: Description (1) Amount %ealized f%om mac+ine (2) Amount %ealized f%om 'oot (non li<e(<ind p%ope%t.) ( ) ,otal amount %ealized (4) Adjusted 'asis (5) Gain realized (!) Gain reco'nized (1) 2efe%%ed &ain Ad2usted 3asis in ne4 propert" Amount $!15,000 $0 $!15,000 $150,000 $5$5,000 $0 $525,000 $150,000 Explanation #i$en #i$en (1) 9 (2) #i$en ( ) " (4) 5esse% of (2) o% (5) (5) " (!) (1) " (1)

') Dase +as a %ealized loss of ($50,000), 'ut t+e %eco&nized loss is $0 'ecause t+e t%ansaction Eualifies as a li<e(<ind e8c+an&e) Dase would +a$e a ca%%.o$e% 'asis of $150,000) :ee t+e followin& computation: Description (1) Amount %ealized f%om mac+ine (2) Amount %ealized f%om 'oot (cas+) ( ) ,otal amount %ealized (4) Adjusted 'asis (5) Loss realized (!) Loss reco'nized (1) 2efe%%ed loss Ad2usted 3asis in ne4 propert" Amount $100,000 $0 $100,000 $150,000 ($50,000) $0 $50,000 $150,000 Explanation #i$en #i$en (1) 9 (2) #i$en ( ) " (4) 5esse% of (2) o% (5) (5) " (!) (1) 9 (1)

!!. [LO '] Prater .nc. enters into an e-chan%e in &hich it %i2es $p its &areho$se on 10 acres of land and recei2es a tract of land. 6 s$++ary of the e-chan%e is as follo&sF Transferred (areho$se Land 3ort%a%e on &areho$se FMV $300"000 !0"000 30"000 Original Basis $,,!"000 !0"000 Accumulated Depreciation $ !"000

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Chapter 10 - Property Dispositions

Cash Assets Received Land

,0"000 FMV $3 0"000

,0"000

(hat is Prater/s reali)ed and reco%ni)ed %ain on the e-chan%e and its #asis in the assets it recei2ed in the e-chan%e* #ain %ealized is $120,000, &ain %eco&nized is $10,000, and H%ate%>s adjusted 'asis in t+e land is $2 0,000) Description (1) Amount %ealized in li<e(<ind (2) Amount %ealized f%om 'oot ( ) ,otal amount %ealized (4) Adjusted 'asis (5) Gain Realized (!) Gain reco'nized (1) 2efe%%ed &ain Ad2usted 3asis in ne4 propert" Amount Explanation $ 40,000 #i$en) @GI of land 0,000 Go%t&a&e %elief $ 10,000 (1) 9 (2) 250,000 (land) 9 $20,000 (cas+) $1$0,000 ( ) " (4)
$225,000 ( $45,000 9 $50,000

$10,000 o% lia'ilit. assumedK o% (5) $110,000 (5) " (!) $$&0,000 (1) " (1)

5esse% of J(2) " cas+ paid

;H%ate% +as de't %elief of $ 0,000 and can offset t+is 'oot wit+ cas+ paid of $20,000) ,+e offset %ules allow a ta8pa.e% to offset de't %elief wit+ cas+ paid o% wit+ ot+e% lia'ilities assumed) *onseEuentl., H%ate% is allowed to net t+e de't %elief a&ainst cas+ paid and +e is t%eated as %ecei$in& onl. t+e $10,000 net lia'ilities +e>s 'een %elie$ed of as 'oot) !8. [LO '] :$ssell Corporation sold a parcel of land 2al$ed at $ 00"000. .ts #asis in the land &as $,8!"000. Gor the land" :$ssell recei2ed $!0"000 in cash in year 0 and a note pro2idin% that :$ssell &ill recei2e $18!"000 in year 1 and $18!"000 in year , fro+ the #$yer. a. (hat is :$ssell/s reali)ed %ain on the transaction* #. (hat is :$ssell/s reco%ni)ed %ain in year 0" year 1" and year ,* a) Russell>s %ealized &ain is $125,000 (see calculation 'elow)) ') Russell %eco&nizes $15,!25 in .ea% 0, $54,!33 in .ea% 1, and $54,!33 in .ea% 2) :ee t+e followin& calculations: Description (1) Amount Realized (2) Adjusted Basis ( ) Gain Realized (4) #%oss H%ofit He%centa&e Amount $400,000 $215,000 $1$5,000 1)257 Explanation #i$en #i$en (1) " (2) ( ) 4 (1)

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Chapter 10 - Property Dispositions

(5) Ha.ment %ecei$ed in .ea% 0 Gain reco'nized in "ear 0 (!) Ha.ment %ecei$ed in .ea% 1 Gain reco'nized in "ear 1 (1) Ha.ment %ecei$ed in .ea% 2 Gain reco'nized in "ear $

$50,000 $15, $5 $115,000 $54, )) $115,000 $54, ))

#i$en (5) 8 (4) #i$en (!) 8 (4) #i$en (1) 8 (4)

Fote t+at all of t+e $125,000 &ain %ealized is %eco&nized o$e% t+e t+%ee .ea% pe%iod) Comprehensive Problems ',. 1&o years a%o" Bethesda Corporation #o$%ht a deli2ery tr$c5 for $30"000 @not s$#Hect to the l$-$ry a$to depreciation li+itsA. Bethesda $sed 36C:S ,00 percent declinin% #alance and the half-year con2ention to reco2er the cost of the tr$c5" #$t it did not elect 0189 e-pensin% or eli%i#le #on$s depreciation. 6ns&er the 4$estions for the follo&in% alternati2e scenarios. a. 6ss$+in% Bethesda $sed the tr$c5 $ntil 3arch of year 3" &hat depreciation e-pense can it clai+ on the tr$c5 for years 1 thro$%h 3* #. 6ss$+e that Bethesda clai+ed $1;"!00 of depreciation e-pense on the tr$c5 #efore it sold it in year 3. (hat is the a+o$nt and character of the %ain or loss if Bethesda sold the tr$c5 in year 3 for $18"000" and inc$rred $,"000 of sellin% e-penses on the sale* c. 6ss$+e that Bethesda clai+ed $1;"!00 of depreciation e-pense on the tr$c5 #efore it sold it in year 3. (hat is the a+o$nt and character of the %ain or loss if Bethesda sold the tr$c5 in year 3 for $3!"000" and inc$rred $3"000 of sellin% e-penses on the sale* a. 2ep%eciation e8pense fo% .ea%s 1 t+%ou&+ is $!,000, $6,!00, $2,330, %especti$el.) ,+is is calculated unde% GA*R: wit+ a fi$e(.ea% %eco$e%. pe%iod, +alf(.ea% con$ention, and 200 pe%cent declinin& 'alance met+od) Because t+e t%uc< was disposed of du%in& .ea% , t+e dep%eciation %ate in t+e ta'le is %educed '. 507) ,+e dep%eciation e8pense fo% eac+ .ea% is calculated as followsF 1ear 1 2 (1) !ri'inal 5asis $ 0,000 0,000 0,000 ($) Rate 20)007 2)007 6)!07; (1) x ($) Depreciation $!,000 6,!00 2,330 $13,430

;6)!7 L 16)207 8 )5 (+alf(.ea% in .ea% of disposition) ') Bet+esda would %eco&nize $ ,500 of o%dina%. income due to t+e -1245 dep%eciation %ecaptu%e %ules, computed as follows: Description (1) Amount Realized Amount $15,000 Explanation $11,000 ( $2,000 sellin& e8penses

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Chapter 10 - Property Dispositions

(2) 0%i&inal Basis ( ) Accumulated dep%eciation (4) Adjusted Basis (5) Gain,(Loss) Reco'nized (!) -1245 dep%eciation %ecaptu%e (1) -12 1 &ain

$ 0,000 (13,500) $11,500 $&,500 $&,500 $0

#i$en #i$en (2) 9 ( ) (1) " (4) 5esse% of ( ) o% (5) (5) " (!)

c) Bet+esda>s would %eco&nize $20,500 of &ain) 0f t+at amount, $13,500 will 'e o%dina%. income due to t+e -1245 dep%eciation %ecaptu%e %ules and t+e %emainin& $2,000 will 'e -12 1 &ain, computed as follows: Description (1) Amount Realized (2) 0%i&inal Basis ( ) Accumulated dep%eciation (4) Adjusted Basis (5) Gain,(Loss) Reco'nized (!) -1245 dep%eciation %ecaptu%e (1) -12 1 &ain Amount $ 2,000 $ 0,000 (13,500) $11,500 $$0,500 $1),500 $$,000 Explanation $ 5,000 ( $ ,000 sellin& e8penses #i$en #i$en (2) 9 ( ) (1) " (4) 5esse% of ( ) and (5) (5) " (!)

10-10