Fundamentals of Taxation 2011 4th Edition by Ana Cruz, Debra Prendergast, Dan Schisler, Michael Deschamps

Exercise 15

Umair sold some equipment he used in his business on August 29, 2010, that was originally purchased for $70,000 on November 21, 2009. The equipment was depreciated using the 7-year MACRS method for a total of $18,574.
a. Assume Umair sold the equipment for $50,000:
(1) What is the gain or loss on the sale of the equipment?
(2) What is the nature of the gain or loss, on what form(s) will this event be recorded, and how is the gain or loss treated for tax purposes on Umair's 2010 1040 tax return? Assume he has no other sales that will generate gains or losses.
b. Assume Umair sold the equipment for $60,000:
(1) What is the gain or loss on the sale of the equipment?
(2) What is the nature of the gain or loss, on what form(s) will this event be recorded, and how is the gain or loss treated for tax purposes on Umair's 2010 1040 tax return? Assume he has no other sales that will generate gains or losses.