Mr. Liu is selling a machine for $48,000, which he used in business for two years. Liu...
Mr. Liu is selling a machine for $48,000, which he used in business for two years. Liu purchased the machine with $38,000, and has deducted $19,000 MACRS depreciation when he sells it. Assuming this is the only property disposed by Mr. Liu this year, what would be Liu's after-tax cash flow for this machine sale? Liu's marginal tax rate for ordinary income is 28% and for long-term capital gain is 15%.
Round to the nearest $10
Homework Answers
Depreciation recapture is ordinary income.and any excess gain is considered as capital gain.
Purchase Value - $38,000
Depreciation - $19,000
Value for Tax basis is - $19,000
Sale Value is - $48,000
Gain will be taxed as ordinary income is the lower of depreciation claimed or your amount realized minus your tax basis.
Total gain is $ 29,000(48,000-19,000)
on $29,000, $ 19,000(Depreciation claimed is considered as ordinary income) and $ 10,000 will be considered as capital gain.
Tax amount = (19,000*28%)+(10,000*15%)
= $ 6,820.
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