Evaluate Tax Consequences Of Business Transactions Practice Test

Ordinary income on inventory ($20,000), Section 1245 recapture on equipment ($60,000 of ordinary income equal to the accumulated depreciation, which is less than the total gain of $80,000), long-term capital gain on remaining equipment appreciation ($20,000), and capital gain on goodwill ($200,000) - the non-compete is typically ordinary income.

All gain taxed as ordinary income since the business is being sold.

Capital gain on the goodwill and ordinary income on the non-compete covenant only.

All gain taxed at long-term capital gains rates since the business was held more than one year.