TP owns and operates a resort hotel in a small town. As a courtesy to his custom

Question

TP owns and operates a resort hotel in a small town. As a courtesy to his customers, TP owns a passenger van which he uses to pick-up and deliver customers to and from the local airport. TP purchased the passenger van for $50,000 several years ago.

This year, TP sold the passenger van for $20,000 so he could purchase a brand new larger van. At the time of the sale, TP had claimed $42,500 as depreciation deductions attributable to the passenger van.

Assuming TP has no other gains or losses, the passenger van is a

1. capital asset

2. non-capital asset

3. Section 1221 asset

4. Section 1231 asset

Select One:

A. (1) and (2) only are correct

B. (1) and (3) only are correct

C. (1) and (4) only are correct

D. (2) and (4) only are correct

Explanation / Answer

Answer is option C

A capital asset is defined to include property of any kind held by an assessee, whether connected with their business or profession or not connected with their business or profession. It includes all kinds of property, movable or immovable, tangible or intangible, fixed or circulating.

Section 1231 asset is a tax term relating to depreciable business asset that has been held for over a year. This passenger van is being used for business purpose from several years.

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