Question

On August 1 of year 0, BLANK purchased a machine for $33,000 to use in its business. On December 4 of year 0, BLANK sold the machine for $31,250. Use MACRS Table. (Loss amounts should be indicated by a minus sign. Do not round percentages used for calculations. Round other intermediate computations to the nearest whole dollar amount. Leave no answer blank. Enter zero if applicable.)

a. What is the amount and character of the gain or loss BLANK will recognize on the sale?

total gain/loss recognized=

character of recognized gain/loss:

ordinary gain/loss=

section 123 gain/loss=

b. What is the amount and character of the gain or loss BLANK will recognize on the sale if the machine is sold on January 15 of year 1 instead?

total gain/loss recognized=

character of recognized gain/loss:

ordinary gain/loss=

section 123 gain/loss=

     

Answer 1

Answer is as follows using MACRS Table.

Answer for A

Sl. No.	Description	Amount	Explanation
1	Amount Realized	$31,250	Amount realized on selling of machine
2	Original Basis	$33,000	Amount spent on purchase of machine
3	Accumulated depreciation	$0	Machine has been purchased in the month of August and again sold in the month of December in the same year. Hence, depreciation allowed is "nil" since it was held for less than one year and not more that one year as required under section 1231
4	Adjusted basis	$33,000	Sl. No. 2 (-) Sl. No. 3
5	Gain/(Loss) Recognized	($1,750)	Sl. No. 1 (-) Sl. No. 4
6	Ordinary gain	$0	Lesser of sl. no. 3 or sl. no. 5
7	Ordinary loss	($1,750)	Sl. No. 5 (-) Sl. No. 6
Hence, from the above it can be concluded that ordinary loss is ($1,750) considering section 1231 which is applicable for this asset since it is held less than one year and the said asset will be treated as an ordinary asset.
Answer	for B
Sl. No.	Description	Amount	Explanation
1	Amount Realized	$31,250	Amount realized on selling of machine
2	Original Basis	$33,000	Amount spent on purchase of machine
3	Accumulated depreciation	$8,757	Refer the calculation as given in the below table
4	Adjusted basis	$24,243	Sl. No. 2 (-) Sl. No. 3
5	Gain/(Loss) Recognized	$7,007	Sl. No. 1 (-) Sl. No. 4
6	Ordinary gain	$7,007	Lesser of sl. no. 3 or sl. no. 5
7	Ordinary loss	$0	Sl. No. 5 (-) Sl. No. 6
Year	Original Basis	Rate	Amount
1	$33,000	14.29%	$4,716
2	$33,000	12.245% (24.49% X 0.5 (Half year to be considered since it was sold in January 15 of the following year)	$4,041
Total---->			$8,757
Hence, from the above it can be concluded that ordinary gain is $7,007 considering section 1231 which is applicable for this asset since it is held less than one year and the said asset will be treated as an ordinary asset.