On January 2, 2012, Orange Corporation purchased equipment for $300,000 with an ADS recovery period of 10 years and a MACRS useful life of 7 years.Section 179 was not elected.MACRS depreciation properly claimed on the asset, including depreciation in the year of sale, totaled $79,605.The equipment was sold on July 1, 2013, for $290,000.As a result of the sale, the adjustment to taxable income needed to arrive at current E & P is:

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The equipment was sold for $290,000, which is less than its original cost of $300,000. This results in a loss of $10,000. However, the MACRS depreciation claimed on the asset totaled $79,605. This means that the book value of the asset at the time of sale was $220,395 ($300,000 - $79,605). The difference between the book value and the sale price is $70,395 ($290,000 - $220,395). This difference is a capital loss. Capital losses are not deductible for corporations, so they must be added back to taxable income to arrive at current E&P. Therefore, the adjustment to taxable income needed to arrive at current E&P is a decrease of $70,395.

On January 2, 2012, Orange Corporation Purchased Equipment for $300,000