(1) Aggregate of excludable portions under section 126 | $24,000 |
(2) Multiply: Applicable percentage for land disposed if within sixth year after section 126 payments were received | 100 |
(3) Amount in § 16A.1255-1(a)(1)(i) | $24,000 |
(4) Gain realized (see (i) of this example) | 10,000 |
(5) Amount in § 16A.1255-1(a)(1)(ii) applied in accordance with paragraph (a)(2) of this section | 10,000 |
(6) Lower of line (3) or line (5) | 10,000 |
Thus, the entire gain realized on the transfer, $10,000, is recognized as ordinary income.
For treatment of the farm land in the hands of B, see example (2) of paragraph (d)(3) of this section.
(1) Amount of gain under section 1255(a)(1) (determined without regard to paragraph (c)(1) of this section): | |
(a) Aggregate of excludable portions under section 126 | $18,000 |
(b) Multiply: Applicable percentage for property disposed of within the fifth year after section 126 payments were received (percent) | 100 |
(c) Amount in § 16A.1255-1(a)(1)(i) | $18,000 |
(d) Gain realized (amount realized $40,000 less adjusted basis, $15,000) | $25,000 |
(e) Lower of line (c) or line (d) | $18,000 |
(2) Limitation in paragraph (c)(1) of this section: | |
(a) Gain recognized (determined without regard to section 1255) | $8,000 |
(b) Minus: Gain recognized as ordinary income under section 1251(c)(1) | $5,000 |
(c) Difference | $3,000 |
(3) Lower of line (1)(e) or line (2)(c) | $3,000 |
Thus, the entire gain recognized under section 351(b) (determined without regard to sections 1251 and 1255), $8,000, is recognized as ordinary income since that amount is equal to the sum of the gain recognized as ordinary income under section 1251(c)(1), $5,000, and under section 1255(a)(1), $3,000.
26 C.F.R. §16A.1255-2