What would be the tax effect on the sale

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Your company has an existing 5 year old piece of equipment it wishes to sell. The purchase price was $37,000. The company paid $500 to have it shipped, $2,000 to have it installed plus an additional $6,000 in working capital to initially operate the machine. Tour company doesn't believe the machine fits the current operational agenda of the company. You think the machine can now be sold for $7,500. The machine is being depreciated straight line to $4,000 salvage over 6 years. Your company is in the 40% tax bracket. Assuming you could sell the machine today, what would be the tax effect on the sale?

a. $3,400 tax loss form of capital gain

b. $1,000 tax payment from depreciation recapture

c. $600 tax payment from depreciation recapture

d. $1,000 tax gain from capital loss

 

Reference no: EM13296273

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