Marquez purchased some equipment for $58,750 on August 15, 2014. He decided he did not need the equipment so he sold it on June 13, 2015 for $56,500. The equipment was subject to depreciation of $6,964 for 2014 and 2015. What gain or loss will Marquez recognize on the sale of the equipment?

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Quizplus · Accepted Answer

The equipment was sold for $56,500, which is $2,250 less than its original cost of $58,750. However, the equipment was also depreciated by $6,964 over the two years that Marquez owned it. This means that the equipment's adjusted basis is $51,786 ($58,750 - $6,964). Therefore, Marquez will recognize a gain of $4,714 on the sale of the equipment ($56,500 - $51,786). This gain is ordinary because the equipment was used in Marquez's business.

Marquez Purchased Some Equipment for $58,750 on August 15, 2014