Suppose that Fabulous had purchased trucks for $400,000 which were used solely in the transportation of inventory purchased in different parts of the United States to U.S customers. All transportation expenses, including depreciation deductions of $200,000 in respect of the trucks were applied to reduce U.S-source income. Fabulous than results the used trucks for $410,000, thereby realizing income of $210,000 to a foreign purchaser that took title to the trucks in Peru. What is the source of the income realized on the sale of the trucks?
Answer:
Purchase cost of trucks = $400,000
Less, accumulated depreciation = $200,000
Adjusted basis = $400,000 - $200,000 = $200,000
When used trucks are sold for $410,000:
Realized income = sale value - adjusted basis = $410,000 - $200,000 = $210,000
Source of the income realized on the sale of the trucks:
Depreciation recapture = $200,000. This will be treated as ordinary income
Long term capital gain = $10,000
Source of the income realized on the sale of the trucks:
Ordinary Income = $200,000
Long term capital gain = $10,000
Suppose that Fabulous had purchased trucks for $400,000 which were used solely in the transportation of...