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A taxpayer purchased used business equipment on November 20, 2016, for $100,000. The equipment was sold...

A taxpayer purchased used business equipment on November 20, 2016, for $100,000. The equipment was sold for $60,000 on August 25, 2018. Depreciation information is as follows:

Accelerated depreciation taken $47,500
Straight-line depreciation (7-year life) would have been 28,500



How will the gain or loss on the sale of this equipment be treated for tax purposes?

Question 18 options:

1)

 $7,500 ordinary income

2)

 $7,500 long-term capital gain

3)

 $7,500 short-term capital gain

4)

 $7,500 Section 1231 gain

5)

 None of the above
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Homework Answers

Answer #1

Answer: 1) $7.500 ordinary income

Explanation

Gain on the sale of the equipment = Amount realized - Adjusted basis

= $60,00 - ($100,000 - $47,500)

= $60,00 - $52,500

= $7,500

The gain of $7,500 which is taxed as ordinary income.

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