CPA Exam — REG (Regulation)Federal Taxation of Property TransactionsMedium
A technician, Mr. Lee, sold a piece of equipment for $45,000. The equipment was purchased for $60,000 several years ago and had accumulated depreciation of $25,000. What is the total gain realized on the sale of this equipment?
- A$10,000
- B$25,000
- C$0
- D$45,000
Show answer & explanationAnswer & explanation
Correct answer: A. $10,000
The adjusted basis of the equipment is its original cost less accumulated depreciation: $60,000 - $25,000 = $35,000. Realized gain is the sales price minus the adjusted basis: $45,000 - $35,000 = $10,000.
Why the other options are wrong
- B. This option represents the accumulated depreciation, not the gain.
- C. This option incorrectly assumes a loss or no gain.
- D. This option is the sales price, not the gain.
Realized Gain/Loss
Realized gain or loss is the difference between the amount realized from the disposition of property and its adjusted basis.
- Amount Realized = Sales Price - Selling Expenses.
- Adjusted Basis = Original Cost - Accumulated Depreciation.
- Realized Gain = Amount Realized > Adjusted Basis.
Memory trick: Realized is 'Sale Minus Basis'.