Hart, an individual, bought an asset for $500,000 and has claimed $100,000 of depreciation deductions against the asset. Hart has a marginal tax rate of 32 percent. What is the amount and character of Hart's recognized gain or loss if the asset is tangible personal property sold for $550,000?

Question

Celeste Ritter

Business

18 August, 12:38

Hart, an individual, bought an asset for $500,000 and has claimed $100,000 of depreciation deductions against the asset. Hart has a marginal tax rate of 32 percent. What is the amount and character of Hart's recognized gain or loss if the asset is tangible personal property sold for $550,000?

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Answers (1)

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Duarte · Answer 1

Gain of $150,000.

Explanation:

The recognized gain/loss of an asset is calculated as below:

Recognized gain/loss of a liquidated asset = Sales price - Net book value of a liquidated asset

= Sales price - (Original purchase cost of a liquidated asset - Accumulated depreciation)

Putting all the number, we get:

Recognized gain/loss of Hart's asset = 550,000 - (500,000 - 100,000) = $150,000

Note: tax rate is only relevant when the question is about calculated casfh inflow from liquidating an asset. If that is the case, we take sale price, then subtracted by the tax on gain/loss.