Question

Lily Tucker (single) owns and operates a bike shop as a sole proprietorship. This year, she sells the following long-term assets used in her business. Asset sales price, cost, accumulated depreciation is 311500, 278500, 72500. Equipment 83000, 160300,30100. Lily's taxable income before these transactions is 219000. What are Lily's taxable income and tax liability for the year?

Answer 1

	Sale price	Adjusted basis (Cost-Accumulated depreciation)	Capital gain / (loss)
Building	$ 311,500	$                                                                                   206,000	$                     105,500
Equipment	$    83,000	$                                                                                   130,200	$                     (47,200)
Net gain / (loss)			$                       58,300

Tax on ordinary income ($219,000-$190,150)*33%+$46,279)	$ 55,800
Tax on capital gain ($58,300*25%)	$ 14,575
Total tax liability	$ 70,375