Question

On August 22, Year 4, Martha purchases a computer to use in her childcare business. She sells the computer on December 28, Year 4, for $2,000 when the machine has an adjusted tax basis of $1,700. What is the amount and character of the gain on the sale

Answer 1

The amount is $300  and character of the gain on the sale is ordinary  income.

Ordinary income

Using this formula

Gain on the sale=Cost of computer -Adjusted tax basis

Let plug in the formula

Gain on the sale=$2,000-$1,700

Gain on the sale=$300 (ordinary income)

Therefore the amount is $300  and character of the gain on the sale is ordinary  income.

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