Glenn sells a piece of equipment used in his business for $31,500. The equipment was purchased on July 1, 2013, at a cost of $22,000. Glenn has taken $6,600 of depreciation on the equipment. What are the amount and classification of the gain on the sale by Glenn?

Question

Quizplus · Accepted Answer

The gain on the sale is calculated as the selling price ($31,500) minus the adjusted basis (original cost $22,000 - depreciation $6,600), resulting in a gain of $16,100. Under Section 1245, the gain up to the amount of depreciation taken ($6,600) is ordinary income, and the remaining $9,500 is a Section 1231 gain.

Glenn Sells a Piece of Equipment Used in His Business