On December 31,2013,Henry,a sole proprietor,sold for $65,000 a machine that was used in his business.The machine had been purchased in 2003 for $50,000,and when it was sold,it had accumulated depreciation of $20,000 and an adjusted basis of $30,000.For the year 2013,how should this gain be treated?

Question

Quizplus · Accepted Answer

The gain on the sale of the machine will be treated as Section 1231 gain to the extent of the lesser of the recognized gain or the total Section 1231 losses for the year. In this case, the recognized gain is $15,000 ($65,000 - $50,000 - $20,000) and there are no other Section 1231 losses for the year. Therefore, $15,000 of the gain will be treated as a Section 1231 gain and the remaining $20,000 ($35,000 - $15,000) will be treated as ordinary income.

On December 31,2013,Henry,a Sole Proprietor,sold for $65,000 a Machine That