There are four possible tax situations which result

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Unformatted text preview: ized in Table 8.3. The assumed tax rates used throughout this text are noted in the final column. There are four possible tax situations, which result in one or more forms of taxable income: The TABLE 8.3 Tax Treatment on Sales of Assets Form of taxable income Definition Tax treatment Assumed tax rate Capital gain Portion of the sale price that is in excess of the initial purchase price. Regardless of how long the asset has been held, the total capital gain is taxed as ordinary income. 40% Recaptured depreciation Portion of the sale price that is in excess of book value and represents a recovery of previously taken depreciation. All recaptured depreciation is taxed as ordinary income. 40% Loss on sale of asset Amount by which sale price is less than book value. If the asset is depreciable and used in business, loss is deducted from ordinary income. 40% of loss is a tax savings If the asset is not depreciable or is not used in business, loss is deductible only against capital gains. 40% of loss is a tax savings 4. For a review of MACRS, see Chapter 3. Under current tax law, mos...
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