Tax_on_disposal_of_assets

Tax_on_disposal_of_assets - Tax on disposal of assets...

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Unformatted text preview: Tax on disposal of assets Selling Price Case 4 ‐ SP>Cost Cost Case 3 ‐ SP<Cost SP>BV Accumulated Depreciation Case 1 ‐ SP=BV Current Book Value Case 2 ‐ SP<BV time → Case 1 ‐ Asset is sold for current book value [no gain or loss ‐ no tax consequences] Case 2 ‐ Asset is sold for less than current book value [tax savings = TAXo x (BV‐SP)] Case 3 ‐ Asset is sold for more than current book value but less than original cost [tax due = TAXo x (SP‐BV)] Case 4 ‐ Asset is sold for more than original cost [tax due = TAXo x (Cost ‐ BV) + TAXc x (SP‐Cost)] TAXo ‐ ordinary income tax TAXc ‐ capital gains tax rate Capital Gains Tax Rate (TAXc)on 0 0 0 5,000 Ordinary Income Tax Rate (TAXo)on 0 ‐3,000 12,000 20,000 Cost Case 1 Case 2 Case 3 Case 4 Assume: TAXo = TAXc = 30,000 30,000 30,000 30,000 Book Selling Value (BV) Price (SP) 10,000 10,000 10,000 10,000 10,000 7,000 22,000 35,000 35% 40% Capital Ordinary Total tax or tax Gains Tax Income (TAXc) Tax (TAXo) savings 0 0 0 0 ‐1,050 ‐1,050 0 4,200 4,200 2,000 7,000 9,000 Case 1 Case 2 Case 3 Case 4 ...
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This note was uploaded on 12/06/2009 for the course MGMT 122 taught by Professor Saouma during the Spring '08 term at UCLA.

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