Charmine, a Single Taxpayer with No Dependents, Has Already Incurred

question 81

Essay

Charmine, a single taxpayer with no dependents, has already incurred a $10,000 § 1231 gain in 2012 and has no § 1231 lookback losses. The taxpayer purchased a business machine for $100,000 five years ago, $70,000 of depreciation has been taken on it, and the machine is now worth $90,000. How will the net § 1231 gain or loss be affected if the taxpayer trades in the business machine for a like-kind business machine and pays an additional $12,000 in cash to obtain the replacement machine? If Charmine already has $322,000 of taxable income which does not include a $10,000 §1231 gain or any capital gains or losses, what is her taxable income?

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Definitions:

CPU

Central Processing Unit, the primary component of a computer that performs most of the processing inside a computer.

Output Module

A component in a control system that sends signals or power from the system to the external environment.

PLC System

A PLC system (Programmable Logic Controller) is a digital computer used for automation of electromechanical processes, such as control of machinery on factory assembly lines.

Programming Terminal

A combination of keyboard and monitor used to insert, modify, and observe programs stored in a PLC.