During 2012, Norman Newhouse sold equipment used in his business for $11,000. fte equipment cost $10,000 and Norman had properly claimed MACRS deductions totaling $4,000. Straight-line depreciation, if it had been used, would have been $2,500. What is the amount of gain that should be reported under Sections 1231 and 1245?

Question

Quizplus · Accepted Answer

Where depreciable property is sold, gain or loss will be recognized to the extent of the diﬀerence between the selling price and the adjusted basis of the asset. the sales price of the asset is $11,000, and the adjusted basis is
$6,000 (cost basis of $10,000 − depreciation of $4,000), resulting in a gain of $5,000 ($11,000 − $6,000). the amount of depreciation ($4,000) must be recaptured under Section 1245 as ordinary income
 the remaining
$1,000 ($5,000 − $4,000) qualiﬁes as Section 1231 gain.

During 2012, Norman Newhouse Sold Equipment Used in His Business