Question

Hart, an individual, bought an asset for $500,000 and has claimed $100,000 of depreciation deductions against the asset. Hart has a marginal tax rate of 32 percent. What is the amount and character of Hart's recognized gain or loss if the asset is tangible personal property sold for $550,000?

Answer 1

Gain of $150,000.

Step-by-step explanation:

The recognized gain/loss of an asset is calculated as below:

Recognized gain/loss of a liquidated asset = Sales price - Net book value of a liquidated asset

= Sales price - (Original purchase cost of a liquidated asset - Accumulated depreciation)

Putting all the number, we get:

Recognized gain/loss of Hart's asset = 550,000 - (500,000 - 100,000) = $150,000

Note: tax rate is only relevant when the question is about calculated casfh inflow from liquidating an asset. If that is the case, we take sale price , then subtracted by the tax on gain/loss.