Cowabunga Corp. had a highly profitable Year 4, during which it purchased $1,000,000 in tangible personal property and elected to claim the highest depreciation expense allowed for tax purposes under Code Section 179. In Year 6 Cowabunga sells the tangible personal property, which now has an adjusted basis of $200,000 as a result of the heavy depreciation taken in Years 4 and 5. Had only MACRS depreciation been taken on the property, its adjusted basis at the time of sale would have been $800,000. At a sales price of $930,000, how much of the $730,000 realized gain must be reported as ordinary gain for tax purposes

Question

Prego

Business

3 January, 14:04

Cowabunga Corp. had a highly profitable Year 4, during which it purchased $1,000,000 in tangible personal property and elected to claim the highest depreciation expense allowed for tax purposes under Code Section 179. In Year 6 Cowabunga sells the tangible personal property, which now has an adjusted basis of $200,000 as a result of the heavy depreciation taken in Years 4 and 5. Had only MACRS depreciation been taken on the property, its adjusted basis at the time of sale would have been $800,000. At a sales price of $930,000, how much of the $730,000 realized gain must be reported as ordinary gain for tax purposes

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Gisselle · Answer 1

Answer and Explanation:

Depreciation = Actual cost - Adjusted basis

= $1,000,000 - $200,000

= $800,000

Therefore, The property which is sold for $930,000, results in a gain of $730,000 and is treated as an ordinary gain.