Kelko sells a plece of equipment used in her business for $14,853 on August 10,
ID: 2601039 • Letter: K
Question
Kelko sells a plece of equipment used in her business for $14,853 on August 10, 2016. The equipment was purchased on January 4, 2015 at a cost of $12,849. Kelko has taken $3,855 of depreciation on the equipment. What is the amount and classification of the gain on the sale by Keiko? O . 0 $5,859 Section 1231 gain O $3,855 ordinary income under Section 1245 and $2,004 Section 1231 gain O $3,855 Section 1231 gain and $2.004 ordinary income under Section 1245. $5,859 ordinary income under Section 1245Explanation / Answer
Solution:
Sale value of equipment = $14,853
Original cost of equipment = $12,849
Depreciation charged = $3,855
As per provisions, if sale value is more than original cost than excess amount will be treates as section 1231 captial gain. gain upto the amount of depreciation will be treated as oridinary income under section 1245.
Therefore
Total profit = $14,853 - ($12,849 - $3,855) = $5,859
Section 1231 gain = $14,853 - 12,849 = $2,004
Section 1245 ordinary income = $3,855
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