Glenn sells a piece of equipment used in his business for $31,500.The equipment was purchased on July 1,2015,at a cost of $22,000.Glenn has taken $6,600 of depreciation on the equipment.What are the amount and classification of the gain on the sale by Glenn?

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Quizplus · Accepted Answer

The gain on the sale is calculated by subtracting the adjusted basis (cost minus accumulated depreciation) from the sale price. The adjusted basis is $22,000 - $6,600 = $15,400. The sale price is $31,500, so the total gain is $31,500 - $15,400 = $16,100. Under Section 1245, the portion of the gain equal to the depreciation taken ($6,600) is treated as ordinary income. The remaining gain ($16,100 - $6,600 = $9,500) is treated as Section 1231 gain, which can be taxed as capital gains if certain conditions are met.

Glenn Sells a Piece of Equipment Used in His Business