Question

Jane operated a restaurant individually. Unfortunately, due to the current situation, he has to sell the restaurant for $5,000,000. He purchased the furniture, fixtures and equipment for $500,000 several years ago and the purchased price was allocated to them. The adjusted basis for these FF&E was $1000,000 and accumulated depreciation was $200,000. What's the effect for this transaction?

A. Capital gain of $400,000

B. Ordinary income of $500,000

C. Ordinary income of $200,000, and capital gain of $200,000

Answer 1

Solution:

The correct answer is Option B. Ordinary income of $500,000

FF&E is a personal property owns by the business and it does not attched to a building , So FF&E is treated in a 3 ways 1) Ordinary income 2) Ordinary Loss 3) Depreciation recapture., while selling the business.

So here the correct answer Ordinary income of $500,000 = $1,000,000 - $500,000 = $500,000

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