In the current year, Henry, a sole proprietor, sold for $65,000 a machine that was used in his business. The machine had been purchased in a few years ago for $50,000, and when it was sold, it had accumulated depreciation of $20,000 and an adjusted basis of $30,000. For the current year, how should this gain be treated?

Question

Quizplus · Accepted Answer

The gain is calculated as the sale price ($65,000) minus the adjusted basis ($30,000), resulting in a $35,000 gain. The portion of the gain up to the accumulated depreciation ($20,000) is treated as ordinary income under depreciation recapture rules, and the remaining $15,000 is treated as a Section 1231 gain.

In the Current Year, Henry, a Sole Proprietor, Sold for $65,000