D tom truman sells a business machine which he has

d.
Tom Truman sells a business machine which he has owned for four years for $27,000. Tom purchased the 78.
machine for $42,000 and has taken $18,000 in depreciation. How much and what type of gain will result
from this sale?
$3,000 long-term capital gain a.
$3,000 ordinary income b.
$18,000 ordinary income; $3,000 long-term capital gain c.
$3,000 Section 1231 gain d.
Susan Songbird sold a word processor used in her business for $550. She had purchased the word 79.
processor three years ago for $950 and has taken $300 in depreciation. How much and what type of gain or
loss will Susan have on the sale?
$300 ordinary income
d.
On January 4, 1980, Rita Racksaw purchased a warehouse for $200,000 with an estimated life of 40 80.
years to be used in her business. On January 5, 2010, she sold the warehouse for $150,000. She used an
accelerated depreciation method resulting in $170,000 depreciation. Straight-line depreciation would have
been $140,000. How much and what type of gain will Rita have on the sale?
d.
On January 4, 1986, Rita Racksaw purchased a warehouse for $150,000. In 2010, she sold the warehouse 81.
for $107,000. She took $135,000 depreciation under ACRS and straight-line depreciation would have been
$125,000. How much and what type of income or gain would Rita have on the sale?

592 CCH Federal Taxation—Basic Principles
Chapter 12 © 2010 CCH. All Rights Reserved.
Wade Woodruff purchased a factory building on February 28, 1986 for $375,000. At the time of Wade’s 82.
death in 2010, he had taken $20,000 in excess depreciation. The factory building was transferred to his son
John at the time of Wade’s death and John sold it immediately after receiving it at a gain of $30,000. What
amount of depreciation needs to be recaptured by Wade’s estate and what amount by John?
$0/$0 a.
$20,000/$0 b.
$0/$20,000 c.
$10,000/$10,000 d.
Jennifer Judd gives her son, Jim, Section 1245 property. The property has an adjusted basis of $11,000 83.
to Jennifer, who has taken $2,000 in depreciation expense. Jim uses the property for three years, takes
depreciation of $3,000 and then sells it for $14,000. What amount of gain must Jennifer recognize and
what amount of gain must Jim recognize?