Question

Gator Inc. reported taxable income of $1,500,000 this year and paid federal income taxes of $315,000. Included in the company’s computation of taxable income is gain from the sale of a depreciable asset of $98,500. The income tax basis of the asset was $197,000. The E&P basis of the asset using the alternative depreciation system was $339,900. Compute the company’s current E&P. (Negative amount should be indicated with a minus sign.)

Taxable income
Federal income taxes
E&P loss from sale of asset
Regular tax gain from sale of asset
Current E & P	$0

    

Answer 1

Taxable Income	1,500,000
Less:
Federal income taxes	-315,000
Regular tax gain from sale of depreciable asset	-98,500
E&P loss from sale of asset (98,500+197,000-339,900)	-44,400
Current E&P Balance	1,042,100

The sales consideration would be the sum of gain made and the income tax basis of the asset. That would mean the sale consideration would be 98,500+ 197,000 =295,500. Since, sales consideration in total is lesser than E&P basis of the asset, this would be considered as loss. Such loss shall be deducted from the taxable income.