Red Company Had an Involuntary Conversion on December 23, 2017

question 14

Multiple Choice

Red Company had an involuntary conversion on December 23, 2017. The machinery had been acquired on April 1, 2015, for $49,000 and its adjusted basis was $14,200. The machinery was completely destroyed by fire and Red received $10,000 of insurance proceeds for the machine and did not replace it. This was Red's only casualty or theft event for the year. As a result of this event, Red initially has:

• A)$10,000 § 1231 loss.
• B)$10,000 § 1245 recapture gain.
• C)$4,200 casualty loss.
• D)$4,200 § 1231 loss.
• E)None of the above.

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Definitions:

Income Quintile

A statistical value of a data set that represents 20% of a population divided based on income levels, used to analyze economic disparity.

Property Income

Income earned from the ownership of assets, such as rents from property, dividends from shares, or interest from financial investments.

Earned Income Tax Credit

A refundable tax credit for low- to moderate-income working individuals and families, designed to encourage and reward work.

Poverty Rate

The proportion of the population that earns an income too low to cover basic living expenses, as measured by the national poverty line.