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"A company bought a piece of equipment for $302,000. The company is using the 7 year...

"A company bought a piece of equipment for $302,000. 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 $178,000. The tax rate is 29%. What is the tax that the company pays from the sale of the equipment?"

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Answer #1

Below is the depreciation schedule. Book value when the equipment is sold is 80,875.60. Half year convention is used and depreciation is halved in 5th year.

Year Depreciation % Depreciation Accumulated depreciation Book value
1 14.29% 43155.80 43155.80 258844.20
2 24.49% 73959.80 117115.60 184884.40
3 17.49% 52819.80 169935.40 132064.60
4 12.49% 37719.80 207655.20 94344.80
5 8.92% 13469.20 221124.40 80875.60

Capital gain = $178,000 - $80,875.60 = $97,124.40. Tax that the company pays = 29%*97,124.40 = $28166.08

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