Question

Since DoNut will be using the land and equipment in a trade or business, will it be considered as ordinary and then 1231 after one year?

1) True
2) False

Answer 1

The use of land and equipment in business by DoNut will not be considered as ordinary income immediately and then Section 1231 property after one year. Section 1231 applies to depreciable business property held for more than one year, but with potential ordinary income recapture for certain depreciable property.

Step-by-step explanation:

The question pertains to whether the use of land and equipment in a trade or business by DoNut would be considered as ordinary income and then Section 1231 property after one year. The answer is False. Section 1231 of the Internal Revenue Code applies to certain depreciable property and real property used in a trade or business and held for more than one year. Such property would generally result in capital gain or loss treatment, rather than ordinary income, upon disposal. However, Section 1245 or Section 1250 may recapture part of the gain as ordinary income under certain circumstances when depreciable property is sold.