During the current year, Goose Corporation sold equipment for $500,000 (adjusted basis of $260,000).The equipment was purchased a few years ago for $560,000 and $300,000 in MACRS deductions have been claimed.ADS depreciation would have been $200,000.As a result of the sale, the adjustment to taxable income needed to determine current E & P is:

Question

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The adjusted basis of the equipment is $260,000, which means that the remaining depreciable basis is $300,000 ($560,000 - $260,000). However, only $200,000 in ADS depreciation was claimed, leaving $100,000 in depreciable basis. Therefore, the remaining depreciable basis is recaptured as ordinary income, resulting in a $100,000 adjustment to taxable income for E&P purposes. This adjustment is subtracted from taxable income since it is a recapture of prior deductions.

During the Current Year, Goose Corporation Sold Equipment for $500,000