Natalie sold a machine for $140,000. The machine originally cost $95,000 and $15,000 of MACRS depreciation had been allowable. The buyer assumed an existing loan of $40,000, paid $30,000 cash down and agreed to pay $10,000 per year for seven years plus interest. Selling expenses are $10,000. What is the amount of gain to be reported in the year of sale?
What will be an ideal response?
The selling price is $140,000. The gross profit from the sale is $35,000 ($140,000 - $80,000 adjusted basis - $10,000 selling expenses - $15,000 of depreciation recapture). The contract price is $140,000 - $40,000 loan = $100,000. The gross profit percentage is $35,000/$100,000 = 35%. The gain reported in the year of sale is:
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