$13-64$

$$Betty$,$ whose tax rate is $32\%,$ is in the business of breeding and racing horses. Except for$$

the transactions below, she has no other sales or exchanges and she has no unrecaptured$$

net Sec. $1231$ losses. Consider the following transactions that occur during the year:

$$ A building with an adjusted basis of $$300,000$ is destroyed by fire. Insurance proceeds$$

of $$500,000$ are received, but Betty does not plan to replace the building. The build$-$ing was built $12$ years ago at a cost of $$430,000$ and used to provide lodging for her$$

employees. Straight$-$line depreciation has been used.

$$ Four acres of the farm are condemned by the state to widen the highway and Betty$$

receives $$50,000.$ The land was inherited from her mother $15$ years ago when its FMV$$

was $$15,000.$ Her mother purchased the land for $$10,300.$ Betty does not plan to pur$-$chase additional land.

$$ A racehorse purchased four years ago for $$200,000$ was sold for $$550,000.$ Total de$-$preciation allowed using the straight$-$line method amounts to $$160,000.$

$$ Equipment purchased three years ago for $$200,000$ is exchanged for $$100,000$ of IBM$$

common stock. The adjusted basis of the equipment is $$120,000.$ If straight$-$line depre$-$ciation had been used, the adjusted basis would be $$152,000.$

$$ An uninsured pony, with an adjusted basis of $$20,000$ and FMV of $$35,000,$ that her$$

daughter uses only for personal use is injured while attempting a jump. Because of the$$

injury, the uninsured pony has to be destroyed by a veterinarian.

What amount of Sec. $1245$ ordinary income must be recognized?

What amount of Sec. $1250$ ordinary income must be recognized?

Will the loss resulting from the destruction of her daughter$$s pony be used to determine net Sec. $1231$ gains or losses?

What is the amount of the net Sec. $1231$ gain or loss?

After all of the netting of gains or losses is completed, will the gain resulting from the involuntary conversion of the building be treated as LTCG$?$

What is the amount of her Sec. $1231$ gain that is unrecaptured Sec. $1250$ gain?