Question

Renata Corporation purchased equipment in 2018 for $328,400 and has taken $147,780 of regular MACRS depreciation. Renata Corporation sells the equipment in 2020 for $197,040.What is the amount and character of Renata's gain or loss?

Answer 1

The gain Renata Corporation got from the sale of equipment is $16420

The tax depreciation method used in the United States is called MACRS, or Modified Accelerated Cost Recovery System. In other words, the method used to determine your business's tax deductions based on the depreciation of your tangible (depreciable) assets is known as MACRS depreciation.

Equipment Book value =

Purchase price - MACRS depreciation

= $328, 400 - $147,780

=$1,80,620

Gain = sale price - Book value

= $197, 040 - $180620

=$ 16420

Gain up to total depreciation is to be treated as ordinary income, that is up to $147, 780. since the gain is $16,420 within depreciation, it is treated as ordinary income.

Renata Corporation has a gain of $16,420 of which $16, 420 is treated as ordinary income due to the section 1245 recapture

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