Question

Income Tax Problem:

Give the tax treatment for Anthony who is an individual in the 37 percent marginal tax bracket who sells the following assets that were purchased in 2008 and used in his business until they are sold in 2019. Straight-line depreciation was taken on the building and Anthony does not have any other gains and losses in 2019 or unrecaptured 1231 losses from the past five years.

Asset	Cost	Adjusted Basis	Selling Price
-      Land	$420,000	$420,000	$600,000
-      Equipment	720,000	540,000	$680,000
-      Machinery	750,000	600,000	$900,000
-      Factory Building	660,000	560,000	$840,000

Answer 1

Solution:

Gain on sale of land = $600,000 – $420,000

= $180,000

It is taxable at 20% as a long-term capital gain tax rate.

Gain on sale of Equipment = $680,000 – $540,000

= $140,000

Since the sales price is not greater than the purchase price, It is taxable at 37%.

Gain on sale of Machinery = $900,000 – $600,000

= $300,000

Depreciation = $750,000 – $600,000 (Cost – Adjusted basis)

= $150,000

Gain of $150,000 taxable at 37% and the remaining gain of $150,000 is taxable at 20% long-term capital gain rate.

Gain on sale of building= $840,000 – $560,000

= $280,000

Depreciation = $660,000 – $560,000 (Cost – Adjusted basis)

= $100,000

Gain of $100,000 taxable at 25% and the remaining gain of $150,000 is taxable at 20% long-term capital gain rate.