Question

I want the answer with the explanation

Lena is a sole proprietor. In April of this year, she sold equipment purchased four years ago for $65,800 with an adjusted basis of $39,480 for $43,428. Later in the year, Lena sold another piece of equipment purchased two years ago with an adjusted basis of $19,740 for $12,831. What are the tax consequences of these tax transactions? Lena has of from the sale of the first equipment. Lena has ▼of from the sale of the second equipment.

Answer 1

1) lena has ordinary gain of $3948 from the sale of the first equipment

Explanation:

Lena has ordinary gain due to S1245 depreciation recapture. As per the section the part of the gain that is due to depreciation is treated as ordinary income.

Gain = sale price - adjusted basis

= $43428 - $39480

= $3948

2)

Lena has a S1231 loss of $6909 from the sale of second equipment

Explanation:

If a section 1245 asset is sold at a loss, the loss is treated as a Section 1231 loss and is deducted as an ordinary loss.

Thus lena will have a S1231 loss of:

Loss = sales - adjusted basis

= $12831 - $19740

= $6909

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