Harry Owns Equipment ($50,000 Basis and $38,000 FMV)and a Building

question 101

Multiple Choice

Harry owns equipment ($50,000 basis and $38,000 FMV) and a building ($140,000 basis and $156,000 FMV) ,which are used in his business.Harry uses straight-line depreciation for both assets,which were acquired several years ago.Both the equipment and the building are destroyed in a fire,and Harry collects insurance proceeds equal to the assets' FMV.The tax result to Harry for this transaction is

• A)the involuntary conversions are treated as ordinary gains and losses.
• B)the involuntary conversions are treated as Sec.1231 gains and losses.
• C)the loss on involuntary conversion is treated as a Sec.1231 loss while the gain is treated as an ordinary gain.
• D)the loss on involuntary conversion is treated as an ordinary loss while the gain is treated as a Sec.1231 gain.

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