Question

1. Apple LLC owns equipment with a $250,000 adjusted basis which was purchased on 3/14/2015 for $435,000. Determine the amount and character of Apple LLC's gain or loss if the equipment was sold on 4/1/2017 with proceeds of: (a) $375,000, (b) $525,000, (c) $220,000.

2. Brunswick LLC purchased manufacturing equipment on 5/19/2015 for $600,000. Brunswick has taken depreciation of $330,000 on the equipment and it has an adjusted basis of $270,000 when it is sold on 2/15/2017 for $450,000. (a). What is the amount and character of Brunswick LLCs gain/loss on the sale of the manufacturing equipment? (b). Assume Bruinswick LLC also has a net non-recaptured 1231 Loss of $50,000. How does this affect your answer to (a) above?

Answer 1

Question - 1

(a) $375,000,

In this case sale value is not in excess of cost of the asset. So total gain = 375000 - 250000 (adj basis) = 125000 is treated as recapture / ordinary business gain. There is no capital gain

(b) $525,000,

In this case sale value is more than cost of the asset.

So total gain = 525000 - 250000 (adj basis) = 275,000

Recapture gain = 435,000 - 250000 = 185,000

Capital gain = 525000 - 435000 = 90,000

(c) $220,000.

Loss realized = 220,000 - 250,000 = 30000......... treated as ordinary business loss and allowed for deduction.

Question - 2

Sale value of 450000 is not more than the original cost of 600,000. Hence there is no capital gain.

Recapture or ordinary business gain = 450000 - 270000 = 180000

(b) Non capture losses cannot be setoff against Recapture gains. So doesnot effect the above calculation.