Joan bought a business machine for $15,000. In a later year, she sold the machine for $12,800 when the total allowable depreciation is $8,500. The depreciation actually taken on the tax returns totaled $8,000. Joan must recognize a gain (or loss) of

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The gain or loss is calculated as the selling price minus the adjusted basis. The adjusted basis is the original cost minus the depreciation actually taken. So, $15,000 - $8,000 = $7,000 (adjusted basis). The gain is $12,800 (selling price) - $7,000 (adjusted basis) = $5,800. However, since the depreciation allowed was $8,500, the gain is $12,800 - ($15,000 - $8,500) = $6,300.

Joan Bought a Business Machine for $15,000