Question

Sumner sold equipment that it uses in its business for $30,800. Sumner bought the equipment a few years ago for $79,600.00 and has claimed $39,775 of depreciation expense. Assuming that this is Sumner's only disposition during the year, what is the amount and type or character of Sumner's gain or loss?

Answer 1

Answer: $9025 §1231 loss

Explanation:

From the question, we are informed that Sumner sold equipment that it uses in its business for $30,800 and that the equipment was bought a few years ago for $79,600.00 and has claimed $39,775 of depreciation expense.

Assuming this is Sumner's only disposition for the year, the amount and type or character of Sumner's gain or loss goes thus:

The book value of the equipment will be:

= $79600 - $39775

= $39825

Since the equipment is sold for $30,800, the loss will be:

= $39825 - $30800

= $9025

It should be noted that there will be no depreciation recapture because the asset is sold for a loss.