Problem 1: Jake purchased a $200,000 crane for his construction business. He sold the crane for $145,000 after taking $110,000 of depreciation. What are the nature and the amount of gain or loss on the sale? On what tax form would the gain or loss be reported?
Problem 2: Davidson Industries, a sole proprietorship, sold the following assets in 2009
Asset Cost Acquired Depreciation Sales price Sale Date
Warehouse $150,000 10/10/05 $28,000 $175,000 3/15/09
Truck 18,000 01/15/08 4,500 16,000 1/15/09
Computer 25,000 07/31/08 3,000 21,000 8/31/09
Determine the amount and the character of the realized and recognized gain or loss from the sale of each asset.
How would your answer change if the computer were a personal computer used at home?
Problem 3: Ramon received a gift of stock from his uncle. The basis of the stock to his uncle was $20,000, and it had an FMV at the date of the gift of $13,000. The donor held the property for more than one year. Complete the following chart under the independent situations shown:
Situation 1 Situation 2 Situation 3
Donor’s basis $20,000 $20,000 $20,000
FMV at gift date 13,000 13,000 13,000
Ramon’s selling price 25,000 10,000 15,000
Basis to Ramon ---- ---- ----
Taxable gain if any ---- ---- ----
Deductible loss if any ---- ---- ----