Question

You purchased a 5-year property class item for $60,000. After using this item for 3 years you sold it for $5,000. What is your gain or loss for tax purposes? Use MACRS depreciation method. 3.

Answer 1

First, we compute MACRS depreciation for first 3 years using 7-year property class.

Year	Depreciation Base ($)	Depreciation Rate (%)	Annual Depreciation ($)
	(1)	(2)	(3) = (1) x (2)
1	60,000	20	12,000
2	60,000	32	19,200
3	60,000	19.2	11,520
		TOTAL DEPRECIATION ($) =	42,720

Book value at end of 3 years = Initial cost - Total depreciation = $60,000 - $42,720 = $17,280

Loss on sale for tax purposes = Book value at end of 3 years - Sale proceeds = $17,280 - $5,000 = $12,280