Question

1. Capital One LLC has a manufacturing warehouse that was purchased in 1983 for $125,000. Capital One LLC claimed accelerated depreciation on the warehouse of $120,000 and straight-line depreciation would have been $113,000. In 2017 Capital One LLC sells the warehouse for $535,000. Calculate the gain on the sale of the warehouse including a breakdown of the character and taxation of the gain.

2. Serena LLC sold the following 1231 assets on June 19, 2017:

Description	Cost	Date Acquired	Net Tax Value	Proceeds Received
Furniture	12,000	5/19/2009	0	7,500
Computer Equipment	25,000	2/5/2014	17,000	10,000
Manufacturing Equipment	75,000	12/1/2015	43,000	81,000

a. Determine the amount and the character of the recognized gain or loss from the disposition of each asset in 2017.

b. Assuming there are $5,000 unrecaptured 1231 losses from prior years, what portion of the gains recognized are capital gains?

5. Complete Form 4797 for Serena LLC for the assets sales in #4 above.  

Answer 1

Solution:

1) Calculation of the Gain on the Sale of the Warehouse including a Breakdown of the Character and Taxation of the Gain:

Cost of Warehouse	$125,000
MACRS depreciation	$120,000
Book Value	$5,000

Tax Rate = 35%

Then, we can calculate the Gain on the Sale on Warehouse,

Cost of Warehouse	$125,000
Less: Straight Line Depreciation	($113,000)
Book Value	$12,000
Sale Value	$535,000
Less: Book Value	($12,000)
Gain on Sale	$523,000
Less: Tax	($185,500)
Net Gain on Warehouse	$337,500

Therefore, the Net Gain on the Sale of Warehouse is $337,500.