Question

A corporation sells a machine used for 9 years in its business for $22,000. The machine originally cost $120,000 and was fully depreciated. Its gain will be treated as:

a. Capital gain
b. Section 1231 gain
c. Section 1245 recapture

d. Section 1250 recapture

e. None of the above

Answer 1

Option (c) is correct. Section 1245 is a process to recapture at ordinary income tax rates allowable or allowed depreciation or amortisation taked on Section 1231 property.

Option (a) is incorrect. Capital gain is usually recognised on sale of capital asset by individual. In a corporation, capital gain is usually added to the ordinary income.

Option (b) is incorrect. Section 1231 gain is usually recognised on sale of real or depreciable property used by a business.

Option (d) is incorrect. Section 1250 recapture is usually recognised when there is a sale of depreciable real estate. Gain from selling 1250 property is recaptured.

Answer is c. Section 1245 recapture.