Question

Obsolete 5-year-old motorcycle repair equipment was sold for $12,000 during the year. It was fully depreciated. The equipment cost $65,000.

determine the amount of gain or loss from that transaction

Determine the initial classification(s) of each gain and loss and place the gains/losses

Depreciation Gains & Recature

Personal Use Casualty & Theft G/L**

Other Casualty & Theft G/L

§1231 Netting Process

LTC G/L

STC G/L

Ordinary Income

Deduction for AGI

Dedcution from AGI

Answer 1

Depreciation is an income tax deduction that allows a taxpayer to recover the cost of property or assets he’s purchased and “placed in service," meaning it is used in his trade or business. A fixed asset is an asset that a business or firm will use to earn income. In this situation, the owner of the business does not anticipate selling the asset within a year of acquiring it, but rather the asset will still be "in service" after that period of time and will help produce long-term income. Residential real estate can also be depreciated.

Depreciation is contrasted with an expense. Business expenses, which commonly include cash transactions such as a business luncheon, are fully deductible in the year in which they were incurred. The expense of purchasing a fixed or tangible asset can be depreciated and spread out over a number of years.

Depreciation is contrasted with an expense. Business expenses, which commonly include cash transactions such as a business luncheon, are fully deductible in the year in which they were incurred. The expense of purchasing a fixed or tangible asset can be depreciated and spread out over a number of years.

Businesses have a choice as to how to take a depreciation deduction. They can either write the cost off as an expense or they can deduct it as depreciation. If the business chooses to write it off as an expense, they can deduct the entire cost in the first year. Or, they can depreciate it and write the asset’s value off over its useful life expectancy.

Years	65000	Cost
Year1	-13000	Depreciation under SLM
Year2	-13000	Depreciation under SLM
Year3	-13000	Depreciation under SLM
Year4	-13000	Depreciation under SLM
Year5	-13000	Depreciation under SLM
Year5	12000	Gain