Question

(a) Nina, Inc. originally purchased a trade/business building several years ago for $750,000. The accumulated depreciation...

(a) Nina, Inc. originally purchased a trade/business building several years ago for $750,000. The accumulated depreciation (straight-line) on the building is $450,000. Nina, Inc. sells the building for $1,000,000. What is the gain on the sale and what type of gain is it?

(b) Using the example above, assume Nina, Inc. is a sole proprietorship. What is the character of the recognized gain that Nina, Inc. reports on the sale of the trade/business building? What amount of tax will Nina, a single taxpayer, pay on the gain, assuming that her marginal tax rate is 32%?

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Answer #1

Part a

Orginal cost of building (a) $ 750,000

Accumulated depreciation (b) $ 450,000

Sale price (c). $ 1,000,000

Realised gain (c-(a-b)). $ 700,000

This gain of $700,000 is not related to operating business hence notva operating gain. Since itvis related to sale of fixed asset hence it is realised gain and transferred to income statement.

Part b.

Even if Nina, Inc is proprietor ship then also nature of gain not changed. It is same as written in part (a) i.e. realised non operating gain.

Taking tax rate of 32% , tax on gain is 32% x 700,000 =$224,000

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