Andrew, an Individual, Began Business Four Years Ago and Has

question 78

Essay

Andrew, an individual, began business four years ago and has never sold a §1231 asset. Andrew owned each of the assets for several years. In the current year, Andrew sold the following business assets: $$\begin{array} { | l | r | r | r | } \hline { \text { Asset } } & \text { Original Cost } & \begin{array} { c } \text { Accumulated } \\\text { Depreciation }\end{array} & \text { Gain/Loss } \\\hline \text { Machinery } & \$ 12,000 & \$ 7,000 & \$ 6,000 \\\hline \text { Furniture } & 10,000 & 2,000 & 3,000 \\\hline \text { Building } & 90,000 & 20,000 & ( 5,000 ) \\\hline\end{array}$$ Assuming Andrew's marginal ordinary income tax rate is 30 percent, what is the character of the gains and losses and what affect do they have on Andrew's tax liability?

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Definitions:

Postconventional

A stage of moral development in which the individual's sense of morality is defined in terms of more abstract principles and values rather than conventional rules or authority figures.

Preliminary

Describes something that comes before the main event, subject, or activity, often serving as an initial or preparatory stage.

Sensitivity

The ability to detect or respond to slight changes, variations, or stimuli.

Muscular Strength

The ability of a muscle or group of muscles to exert force against resistance.