Question

In 2019, Dan sold a business machine for $75,000. He purchased the machine in 2017 for $90,000, and had taken a total of $52,500 depreciation. How much Section 1231 gain will Dan recognize in connection with this sale?

Answer 1

Section 1231 states that the gain, in case of asset held for one year or more, up to depreciation charged to p&L Ac shall be treated as ordinary profit which shall be taxed at normal rates. here cost of machine = 90,000$ , Depreciation = 52500$ , Selling price = 75000$

Gain = Selling price - ( Cost of machine - depreciation)

=75000 - (90,000-52500)

=75000-37500

=37500$

Sine gain is less than depreciation whole of 37500$ shall be treated as section 1231 gain