Question

Question

"A company bought a piece of equipment for $254,000. The company is using the 7-year MACRS property class to depreciate the asset for tax purposes. At the end of year 5, the company sold the equipment for $99,000. The tax rate is 36%. What is the tax that the company pays from the sale of the equipment?"

Answer 1

MACRS depreciation schedule is as follows.

Year	Depreciation Base ($)	Depreciation rate (%)	Annual Depreciation ($)
	(A)	(B)	(A) x (B)
1	2,54,000	20	50,800
2	2,54,000	32	81,280
3	2,54,000	19.2	48,768
4	2,54,000	11.52	29,261
5	2,54,000	11.52	29,261
		Accumulated Depreciation ($) =	2,39,370

At end of year 5,

Book value ($) = Cost - Accumulated depreciation = 254,000 - 239,370 = 14,630

Gain from sale of equipment ($) = Sale price - Book value = 99,000 - 14,630 = 84,370

Tax paid ($) = 84,370 x 36% = 30,373.20