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Lets now assume Teton sells the machinery for $850,000. If the original basis was $710,000 and...

Lets now assume Teton sells the machinery for $850,000. If the original basis was $710,000 and the accumulated depreciation was $450,000, What is the amount of the gain Teton would recognize on this sale?

What is the character of the above gain?

A

All Ordinary Income
B

All Long-term Capital Gain
C

Ordinary income for the depreciation recapture and long-term capital gain for the rest
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Answer #1

Selling price of the asset = 850,000

Original price = 710,000

Accumulated depreciation = 450,000

Therefore the book value as on date of sale

= 710,000 - 450,000

= 260,000

Gain = 850,000 - 260,000 = 590,000

As the asset is a capital asset and is being held by the company for more than one year because of the accumulated depreciation the gain on sale of the asset will be long term capital gain.

Therefore the correct option is B

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