During the current year,Mrs.Mayhew received a used computer as a gift from her son for her personal use.The computer has a current fair market value of $350 and cost her son $850.He took $400 of depreciation deductions while it was used in his business.Mrs.Mayhew uses the computer for several years and then sells it for $200.What is the amount and type of gain or loss that Mrs.Mayhew recognizes on the sale?
A)$0 gain or loss
B)$150 Section 1245 loss
C)$150 Section 1231 loss
D)$250 Section 1231 loss
E)None of the above

Question

Quizplus · Accepted Answer

Mrs. Mayhew's basis in the computer is the lesser of the fair market value at the time of the gift ($350) or her son's adjusted basis ($450, which is $850 cost minus $400 depreciation). Since $350 is less, her basis is $350. She sells it for $200, resulting in a $150 loss ($350 basis - $200 sale price). However, personal use property losses are not deductible, so she recognizes $0 gain or loss.

During the Current Year,Mrs