Question

White Company acquires a new machine for $75,000 and uses it in White’s manufacturing operations. A few months after White places the machine in service, it discovers that the machine is not suitable for White’s business. White had fully expensed the machine in the year of acquisition using § 179. White sells the machine for $60,000 after it held the machine only for a total of 15 months. What was the tax status of the machine when it was disposed of and the amount of the gain or loss?
(a) An ordinary asset and $60,000 loss.
(b) A § 1231 asset and $60,000 gain
(c) An ordinary asset and $60,000 gain.
(d) A § 1231 asset and $60,000 loss.
(e) A capital asset and $60,000 gain.

Answer 1

Answer:

The answer is: B) A § 1231 asset and $60,000 gain

Explanation:

§ 1231 property is real or depreciable business property held for more than one year.

Since White gained from the sell of a §1231 property, it will be taxed at the lower capital gains tax rate versus the ordinary income rate.

If the sold property was held for less than one year, the § 1231 capital gain does not apply.