Can someone please help me out on this Section 1231 gain question. 

A company purchases equipment for $100,000 in year 1.  The company decides to sell the asset in a subsequent year when the accumulated depreciation is $52,000.  The asset is sold for $110,000.  What is the section 1231 gain on the sale?

A. $62,000

B. $52,000

C. $10,000

D. $0

Section 1231 gain on sale = 10000

Ordinary Income = 52000

Calculated as:-

Equipment basis on the date of sale- Cost of equip - Depreciation=48000

Total gain = 110000-48000=62000

Oridinary Income (i.e. Depreciation recapture to the extent Depr is deducted on P&L acc till date) = 52000

Section 1231 gain(any excess gain over ordinary income) = 62000-52000 = 10000

Hope it helps

elmhurstman wrote: 1231 Gains are basically the gain that you get, if the asset wasn't depreciated. Notice that 1231 gain is 10,000, which is 110,000 - 100,000... The rest of the gain you get, is because of depreciation. i.e. if you depreciate the equipment and the basis then becomes 80,000; then the TOTAL gain would be 110,000 - 80,000 = 30,000.... Out of this 30,000, $10,000 would still be the 1231 gain.

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