Five years ago, Wilson James purchased a photocopier with a five-year recovery period for use in his business for $8,000.He deducted depreciation totaling $7,078 in the five years.In the current year, after owning and using the machine 58 months, James sold it for $1,122.What are the amounts of his depreciation recapture and § 1231 gain, respectively?

Question

Quizplus · Accepted Answer

Depreciation recapture = (amount of depreciation deducted) - (actual depreciation) = $7,078 - [$8,000/(5 years x 12 months/year) x 58 months] = $200

§ 1231 gain = (selling price) - (adjusted basis) = $1,122 - [$8,000 - $7,078 + $200] = $244

However, since the § 1231 gain is less than the depreciation recapture, the net gain is only $200.

Five Years Ago, Wilson James Purchased a Photocopier with a Five-Year