Parent Corporation Purchases a Machine (A Five- Year Property) for $20,000

question 73

Essay

Parent Corporation purchases a machine (a five- year property) for $20,000. It claims $4,000 of depreciation under the MACRS rules in the first year it owns the property. At the close of business on the last day of the first year, Parent sells the machine to a 100%- owned corporation (Subsidiary) for $18,000. Subsidiary immediately commences depreciating the machine as a five- year property using the regular MACRS rules.
What gain is reported by Parent Corporation in the first year that Subsidiary Corporation depreciates the machin

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Definitions:

Marginal Tax Rate

The rate at which an additional dollar of income would be taxed, reflecting the percentage of each additional dollar that is paid in tax.

Income Tax Schedule

A chart or table displaying the rates to be applied to income ranges for calculating the amount of income tax due.

Taxable Income

The portion of an individual's or entity's income used as the base for calculating income tax owed to the government.

Average Tax Rate

The ratio of the total amount of taxes paid to the total income, indicating how much of one's income goes to taxes.