Question

Office furniture purchased for $50,000 on Feb 28, 2018 is being sold for $30,000 December 2, 2020. The company is at a 40% tax bracket. Compute the tax consequence from the sale of the furniture.

Answer 1

As the furniture has been bought at $50,000 and sold for $30,000.

Suppose Depreciation on furniture is 40% (ie. Maximum Depreciation allowed to companies)

So Depreciation is $50,000 × 40% = 20,000 (Full depreciation if the asset held for more than 180 days)

So, Net Value(at the time of sale) of Furniture would be $50,000 - $20,000 = $30,000

If Asset is sold within the year it is termed as "Short Term".

Therefore, Short Term Capital Gain/ Loss = Sale Price - Net value of the asset at the time of sale.

Ie. =〉 $30,000 - $30,000 = $0

Hence, the asset is sold at par, there's no Capital Gain or Loss on sale of Furniture.

So, if there's no Capital Gain, then the tax cannot be charged.

Hence, the tax on Sale of furniture would be Nil (ie. $0).