Question

In year 0, Longworth Partnership purchased a machine for $56,250 to use in its business. In year 3, Longworth sold the machine for $43,300. Between the date of the purchase and the date of the sale, Longworth depreciated the machine by $24,700. (Loss amounts should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.)

a. What is the amount and character of the gain (loss) Longworth will recognize on the sale?

b. What is the amount and character of the gain (loss) Longworth will recognize on the sale if the sale proceeds were increased to $57,400?

c. What is the amount and character of the gain (loss) Longworth will recognize on the sale if the sale proceeds were decreased to $15,800

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

     

     

     

  

Answer 1

Gain on sale of property will qualify as ordinary income if they are less than or equal to the amount the property has depreciated and if the gains exceed the depreciation then the income is treated as capital gains.

Therefore, the amount and characeter of gain/loss under each of the 3 options are computed as follows: