Question

In year 0, Longworth Partnership purchased a machine for $53,250 to use in its business. In year 3, Longworth sold the machine for $44,900. Between the date of the purchase and the date of the sale, Longworth depreciated the machine by $31,200. (Loss amounts should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.)

c. What is the amount and character of the gain or loss Longworth will recognize on the sale if the sale proceeds are decreased to $15,600 (before the §1231 netting process, if applicable)?

Description	Amount
Total Gain/(Loss) Recognized
Character of Recognized Gain/(Loss):
Ordinary Gain/(Loss)
§1231 gain/(loss)

     

Answer 1

Answer
Particulars	Amount	Amount
Amount realized on sale of machine		$      15,600
Machinery Purchased	$      53,250
Less : Depreciation	$      31,200
Total		$      22,050
Gain/(Loss) recognized		$      -6,450
Section $1245 depreciation recapture		$             -
$1231 (Loss)		$        6,450
Here, Loss recognized, as per rule, Only gains are treated as ordinary income under $1245. Any loss is treated as $ 1231 loss