Question

In January of the current year, Wanda transferred machinery worth $200,000 (basis of $30,000) to a controlled corporation, Oriole, Inc., in a transfer that qualified under § 351. Wanda had deducted depreciation on the machinery in the amount of $165,000 when she held the machinery for use in her proprietorship. Later during the year, Oriole sells the machinery for $190,000.

Answer the following questions regarding the tax consequences to Wanda and to Oriole on the sale of the machinery.

a. Does Wanda recognize a gain or loss of any kind on the transfer of the machinery to Oriole?
No gain is recognized

b. Which taxpayers, if any, will recognize a gain as a result of the subsequent sale of the machinery by Oriole?
Only Oriole, Inc.

c. What is Oriole's basis in the machinery before the sale?
$

d. What is Oriole's gain from the sale?
Oriole has a gain of $ which is treated as ordinary income under § 1245 .

Answer 1

a.Does Wanda recognize a gain or loss of any kind on the transfer of the machinery to Oriole?
Answer: No gain is recognized

b. Which taxpayers, if any, will recognize a gain as a result of the subsequent sale of the machinery by Oriole?
Answer: Only Oriole, Inc.

c. What is Oriole's basis in the machinery before the sale?
Answer: $30000

d. What is Oriole's gain from the sale?
Answer: Oriole has a gain of $160000 which is treated as ordinary income under § 1245 .