a. Cara sells a piece of construction equipment used in her excavation business (a sole proprietorship) in
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- a. Cara sells a piece of construction equipment used in her excavation business (a sole proprietorship) in 2020. The equipment had an initial cost of $86,000 in 2018, and she has taken $70,000 in cost recovery via depreciation on the equipment. Cara sells the equipment for $96,000. What is the AMOUNT and CHARACTER of Cara’s gain or loss for 2020 assuming no 1231 losses were deducted in the past five years? (5 points)
- b. Refer to part a. Cara had the following net Section 1231 results for each of the years shown. What amount of Cara’s gain(s), from part a, will be taxable as a capital gain in 2020? (5 points)
Tax Year Net 1231 Loss Net 1231 Gain
2015 $18,000
2016 $33,000
2017 $12,000
2018 $41,000
2019 $20,000
- c. In addition to the gain on the construction equipment in parts a and b, Cara has the following capital gains and losses: A $3,000 STCG, a $4,000 LTCG, a $12,000 STCL, and a Collectibles gain of $15,000. Including any gain on the construction equipment taxable as a capital gain from part b, what net capital gain(s) or loss(es) does Cara report on her 2020 tax return? Be as specific as possible. (5 points)
- Explain how depreciation recapture under IRC 1245 and 1250 can be described as an equitable, or “fair,” treatment to taxpayers. (HINT: Think about marginal tax rates) (5 points)
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