[helen2012cpa]

Decker sold equipment for 200,000$. The equipment was purchased for 160,000 and had accumulated depreciation of 60,000$. What amount is reported as an ordinary income under code sec 1245? (2011 AICPA released question #10)

a) $ 0

b) $ 40,000

c) $ 60,000

d) $ 100,000

The correct answer is C. In my understanding, we should report an ordinary income the lesser of gain recognized (40,000) or depreciation recaptured (60,000). so B should be the answer. What am i missing here?

[Anonymous]

The gain recognized is $100,000: selling price ($200,000) less adjusted basis ($160,000 – $60,000 = $100,000).

Accumulated depreciation is subtracted from the net book value (aka adjusted basis).

[helen2012cpa]

oh yeah,howcome i didn't see that, i think i need to have a coffee……..

[Anonymous]

Better now than on the exam 😀

[Author]

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