# Jess sold a piece of equipment she used in her business. The equipment cost Jess $51,500 several... ## Question: Jess sold a piece of equipment she used in her business. The equipment cost Jess$51,500 several years ago and had accumulated depreciation taken in the amount of $20,300. Jess sold the equipment for$35,000.

a) What is her Section 1245 property gain?

b) How much of the gain is subject to recapture at the 25% tax rate?

c) How much of the gain is ordinary income?

## Depreciation Expense:

Depreciation expense is the qualified deduction for computing the taxable income. Depreciation expenses associated with a fixed asset will be calculated by total cost regarding this transaction over the asset's lifetime.

Given information:

• Purchase price = $51,500 • Accumulated depreciation =$20,300
• Salvage value = $35,000 a. Section 1245 Property gain: Adjusted cost basis for tax =$51,500 - $20,300 =$31,200

Section 1245 gain = $35,000 -$31,200 = \$3,800

b.

Since the salvage value is less than than the original purchase price, there is no capital gain in this case. 100% of the section 1245 gain will be taxed as the ordinary income.

c.

As explained above, 100% of section 1245 will be treated as ordinary income. 