Dontrell sells a building used in his business at a gain of $20,000.The building was purchased in 2006,and $15,000 of depreciation had been deducted on the building to the date of sale.Dontrell's only other property transaction resulted in a $5,000 loss on the sale of equipment used in his business.Dontrell's marginal tax rate is 33% without considering these two transactions.As a result of these transactions
I.Dontrell will pay additional tax of $2,850.
II.Dontrell can only deduct $3,000 of the loss on the sale of the equipment and pays a tax of $3,750 on the sale of the building.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question

Dontrell sells a building used in his business at a gain of $20,000.The building was purchased in 2006,and $15,000 of depreciation had been deducted on the building to the date of sale.Dontrell's only other property transaction resulted in a $5,000 loss on the sale of equipment used in his business.Dontrell's marginal tax rate is 33% without considering these two transactions.As a result of these transactions
I.Dontrell will pay additional tax of $2,850.
II.Dontrell can only deduct $3,000 of the loss on the sale of the equipment and pays a tax of $3,750 on the sale of the building.
​
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Quizplus · Accepted Answer

Dontrell's gain on the sale of the building is $20,000 - $15,000 (depreciation) = $5,000. Since his marginal tax rate is 33%, he will owe an additional tax of $5,000 x 0.33 = $1,650. Therefore, statement I is correct. 
Statement II is not relevant to the question as it pertains to the sale of equipment, which is not mentioned as a taxable event in this scenario.

Dontrell Sells a Building Used in His Business at a Gain