Question

Albert purchased and placed in service used office furniture on January 3, 2018, for $40,000. Albert's accountant depreciated the furniture using SL depreciation over 10 years for financial reporting purposes. The accountant also used the same depreciation amounts when filing Albert's income tax returns. On Jan. 10, 2023. Albert sold the furniture.

Determine the tax basis of the furniture at the time of the sale?

Answer 1

Solution :

Given data :

Cost of office furniture = $40,000

Life of Asset = 10 years .

Calculation of Depreciation as per Straight-line Method -

Depreciation as per Straight-line Method = $40,000 / 10

= $4,000 per annum .

From 2018 - 2023 depreciation = $4,000 * 5

= $20,000

Determination of the Tax basis of the furniture at the time of sale -

For Income tax purpose Depreciation should be @10% on Written Down Value Method(WDV)

Therefore Written down value at the time of Sale (On january 23) is $23,620

Accountant Should reserve the Excess depreciation charged in the previous years that is $3,620 .