Sammy sells a piece of specialized equipment (with a high resale value)used in his business for $41,650 on September 10,2014.The equipment was purchased on May 20,2011 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

The gain on the sale of the equipment can be calculated as follows:

Sale price: $41,650 
Less: Adjusted basis ($32,000 + $9,200 depreciation): $41,200

Gain on sale: $450

Since the equipment is considered Section 1245 property (i.e. personal property used in a trade or business), the gain is classified as follows:

$9,200 ordinary income under Section 1245 (recapture of depreciation)

$450 excess of sales price over depreciated basis

$9,650 Section 1231 gain

Therefore, the correct option is D.

Sammy Sells a Piece of Specialized Equipment (With a High