Sammy sells a piece of specialized equipment (with a high resale value)used in his business for $41,650 on September 10,2017.The equipment was purchased on May 20,2014 for $32,000.Sammy has taken $9,200 of depreciation on the equipment.What are the amount and classification of the gain on the sale by Sammy?

Question

Quizplus · Accepted Answer

To calculate the gain, we need to determine the adjusted basis of the equipment, which is the original cost of $32,000 minus the accumulated depreciation of $9,200, resulting in an adjusted basis of $22,800.

The selling price of $41,650 exceeds the adjusted basis of $22,800, resulting in a gain of $18,850.

Since the equipment is classified as Section 1245 property (property that is or has been subject to depreciation), the portion of the gain attributable to the depreciation allowed or allowable (which is $9,200) is considered ordinary income under Section 1245, and the remaining gain of $9,650 is classified as Section 1231 gain (gain from the sale of depreciable property used in a trade or business).

Therefore, the correct answer is D, which shows that $9,200 of the gain is ordinary income under Section 1245, and $9,650 is Section 1231 gain.

Sammy Sells a Piece of Specialized Equipment (With a High