Question

Buckley, an individual, began business two years ago and has never sold a §1231 asset. Buckley has owned each of the assets since he began the business. In the current year, Buckley sold the following business assets: Asset Accumulated Original Cost Depreciation Gain/Loss Computers $ 6,000 $ 2,000 $ (3,000) Machinery 10,000 4,000 (2,000) Furniture 20,000 12,000 7,000 Building 100,000 10,000 (1,000) Assuming Buckley’s marginal ordinary income tax rate is 32 percent, answer the questions for the following alternative scenarios: (Loss amounts should be indicated by a minus sign. Input all other amounts as positive values.) Required: b1. Assume that the amount realized increased so that the building was sold at a $6,000 gain instead. What is the amount and character of Buckley’s gains or losses for the current year? b2. Calculate Buckley's tax liability or tax savings for the year.

Answer 1

Buckley Sec 1245 gain is $7,000 and his Sec 1231 gain is 1000, calculated as below
Computers	Sec 1231		($3,000)	Loss
Machinery	Sec 1231		-2,000	Loss
Furniture	Sec 1245	Dep. Recapture	7,000	Gain
Building	Sec 1250	Unrecapturd	6,000	Gain
Sec 1250 unrecaptured gain amximum tax rate is 25%, so tax liability is
Tax liability calculation
	Amount	Tax Rate	Amount of tax
Sec 1231	1000	25%	250
Sec 1245	7000	32%	2240
Net Tax			$         2,490.00
For 1231 gain , sec 1250 gain and Sec 1231 loss is netted