Zoe Ann Transfers Machinery Having a $36,000 Adjusted Basis and a $70,000

question 105

Essay

Zoe Ann transfers machinery having a $36,000 adjusted basis and a $70,000 FMV for all 100 shares of Zeema Corporation's stock. Before the transfer, Zoe Ann used the machinery in her business. She originally paid $50,000 for the machinery and claimed $14,000 of depreciation before transferring the machinery. Zoe Ann recaptures no depreciation on the transfer and the recapture potential is transferred to Zeema Corporation. Zeema sells the machine for $66,000 after it had depreciated the machine an additional $4,000. What is Zeema's gain on the machine and what is its character?

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Definitions:

Drum Brakes

A type of braking system using brake shoes pressed outward against a rotating drum to slow or stop a vehicle.

Disc Brakes

A type of brake that slows or stops a vehicle by squeezing brake pads against a disc or rotor attached to the wheel.

Brake Fade

A reduction in the braking power of a vehicle, often due to overheating of the brake components during heavy use.

Water Fade

A decrease in the performance of brake components due to the presence of water.