Question

Keiko sells a piece of equipment used in her business for $14,853 on August 10, 2019. The equipment was purchased on January 4, 2018 at a cost of $12,849. Keiko has taken $3,855 of depreciation on the equipment. What is the amount and classification of the gain on the sale by Keiko?

Answer 1

Answer:

as per Section 1231 , gain = $2,004

as per Section 1245 here ordinary income = $3,855

Explanation:

given data

Sale value = $14,853

Original cost = $12,849

Depreciation = $3,855

solution

we know that by provisions when sale value is more than original cost

than there excess amount will be treated as the section 1231 capital gain

and that gain up to depreciation amount will be treated as ordinary income under the section 1245

so here we get here first total profit that is

total profit = $14,853 - $12,849 - $3,855

total profit = $5,859

so as per Section 1231

gain = $14,853 - 12,849

gain = $2,004

and

as per Section 1245

here ordinary income = $3,855