McGraw-Hill's Taxation of Individuals and Business Entities 3rd Edition by Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver

Exercise 3

{Research} 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).