Jim has decided to contribute some equipment he previously used in his sole proprietorship in exchange for a 10 percent profits and capital interest in Fast Choppers LLC. Jim originally paid $200,000 cash for the equipment. Since then, the tax basis in the equipment has been reduced to $100,000 because of tax depreciation, and the fair market value of the equipment is now $150,000. a. Must Jim recognize any of the potential § 1245 recapture when he contributes the machinery to Fast Choppers? {Hint: See § 1245(b)(3).} b. What cost recovery method will Fast Choppers use to depreciate the machinery? {Hint: See § 168(i)(7).} c. If Fast Choppers were to immediately sell the equipment Jim contributed for $150,000, how much gain would Jim recognize and what is its character? {Hint: See § 1245 and 704(c).}
Jim has decided to contribute some equipment he previously used in his sole proprietorship in exchange for a 10 percent profits and capital interest in Fast Choppers LLC. Jim originally paid $200,000 cash for the equipment. Since then, the tax basis in the equipment has been reduced to $100,000 because of tax depreciation, and the fair market value of the equipment is now $150,000.
a. Must Jim recognize any of the potential § 1245 recapture when he contributes the machinery to Fast Choppers? {Hint: See § 1245(b)(3).}
b. What cost recovery method will Fast Choppers use to
c. If Fast Choppers were to immediately sell the equipment Jim contributed for $150,000, how much gain would Jim recognize and what is its character? {Hint: See § 1245 and 704(c).}
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