Question

Lena is a sole proprietor. In April of this year, she sold equipment purchased four years ago for $26,000 with an adjusted basis of $15,500 for $17,000. Later in the year, Lena sold another piece of equipment purchased two years ago with an adjusted basis of $8,200 for $5,500. What are the tax consequences of these tax transactions?

Lena has Selecta:
(capital gain, a capital loss, an ordinary gain, an ordinary loss) of $_______ from the sale of the first equipment.
Lena has Selecta:___________.

Answer 1

1. Lena has a ORDINARY GAIN of $1,500 from the sale of the first equipment.
2. Lena has a ORDINARY LOSS of $2,700 from the sale of the second equipment.

Step-by-step explanation:

Lena sold the first equipment for $17,000, and that resulted in an ordinary gain = $17,000 - $15,500 = $1,500. This gain was due to a §1245 depreciation recapture.

Lena sold the second equipment for $5,500, and that resulted in an ordinary loss (§1231 loss) = $5,500 - $8,200 = $2,700.