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Frank purchased equipment for $50,000 on March 1, 2014. As of today, Frank has taken $20,000...

Frank purchased equipment for $50,000 on March 1, 2014. As of today, Frank has taken $20,000 of depreciation deductions on the equipment. Due to current market conditions, Frank decides to sell the equipment because he can sell it now for $60,000. How much and what type of gain does Frank recognize when he sells the equipment now?

a.

$30,000 ordinary income
b.

$30,000 long-term capital gain
c.

$20,000 long-term capital gain and $10,000 ordinary income
d.

$10,000 long-term capital gain and $20,000 ordinary income
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Answer #1

Ans-

Capital Gain is the profit on sale above original cost = 60000 - 50000 = 10000

20000 of depreciation deductions have been claimed from the ordinary income and hence on sale would form part of the ordinary income = 20000

Correct choice: D

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