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

Question

Quizplus · Accepted Answer

The gain from selling the business asset is subject to Section 1231 rules since it was used in Henry's trade or business. The adjusted basis of the asset was $30,000, and the amount realized was $65,000, resulting in a gain of $35,000. However, $20,000 of the gain is treated as ordinary income due to the accumulated depreciation, while $15,000 is treated as Section 1231 gain. Therefore, the correct choice is option D.

In the Current Year, Henry, a Sole Proprietor, Sold for $65,000