Question

Jonathan operates a business as a sole proprietor. His business is a lawn service and landscaping business. In July 2018, Jonathan purchased two new lawn mowers at a cost of $6,000 each. He also purchased a new warehouse to store all the equipment in. The warehouse cost $200,000 and he purchased it in August 2018 In 2020, Jonathan had the following items of income and deduction:

$70,000 of income form lawn service $20,000 in expenses related to his business Sale of the warehouse for $210,000   Sale of one mower (purchased in 2018) for $4,000

Please calculate Jonathan's taxable income and any special issues relating to how the income will be taxed for 2020.

Answer 1

Computation of Capital gain/loss on sale of assets:
Lawn mover purchased on July-2018
Cost of purchases	6000
Depreciation @ 10% p.a.:
-in 2018 for full year	600
-in 2019 for full year	600
-in 2020 for full year	600
Book value on date of sale	4200
Sale Value	4000
Long term capital loss	200

Computation of Capital gain/loss on sale of assets:
Warehouse purchased on August-2018:
Cost of purchases	200000
Depreciation @ 2% p.a.:
-in 2018 for half year	2000
-in 2019 for full year	4000
-in 2020 for full year	4000
Book value on date of sale	190000
Sale Value	210000
Long term capital gain	20000

Net Long Term Capital Gain = 19,800

Computation of Taxable Income
Income from business	70000
Less:
Expenses related to business	20000
Depreciation on asset not sold	600
(1 lawn mover of cost 6000)
Taxable income from business	49400
Taxable Long term capital gain	19800