Three years ago, Hi Tek purchased some 5-year MACRS property for $67,400. Today, it is selling this property for $28,000. How much tax will the firm owe on this sale if the tax rate is 34 percent? The MACRS allowance percentages are as follows, commencing with year one: 20.00, 32.00, 19.20, 11.52, 11.52, and 5.76 percent.

Question

Quizplus · Accepted Answer

The accumulated depreciation over three years is $67,400 * (20% + 32% + 19.2%) = $47,888. The book value is $67,400 - $47,888 = $19,512. The gain on sale is $28,000 - $19,512 = $8,488. The tax owed is $8,488 * 34% = $2,884.32, rounded to $2,920.

Three Years Ago, Hi Tek Purchased Some 5-Year MACRS Property