During the current year, USACo (a domestic corporation) sold equipment to FrenchCo, a foreign corporation, for $350,000, with title passing to the buyer in France. USACo purchased the equipment several years ago for $100,000 and took $80,000 of depreciation deductions on the equipment, all of which were allocated to U.S.-source income. USACo's adjusted basis in the equipment is $20,000 on the date of sale. What is the sourcing of the $330,000 gain on the sale of this equipment?

Question

Quizplus · Accepted Answer

The gain on the sale of the equipment is the difference between the amount realized ($350,000) and the adjusted basis ($20,000), which is $330,000. Because the equipment was sold to a foreign corporation and the title passed to the buyer outside the U.S., the sale is considered to be foreign source income. However, the $80,000 of depreciation deductions claimed by USACo on the equipment were allocated to U.S.-source income, which means that $80,000 of the gain is considered to be U.S. source income. Therefore, the sourcing of the gain is $250,000 foreign source and $80,000 U.S. source.

During the Current Year, USACo (A Domestic Corporation) Sold Equipment