Yesterday · Tue, Nov 3

Daily Ledger #1

After-tax salvage value · Final Exam

Copperleaf Woodshop bought a panel saw with a depreciable basis of $124,000. It is 3-year MACRS property (rates: 33%, 45%, 15%, 7%). After 2 years it sells the panel saw for $39,300. The tax rate is 21%. How much cash does it keep from the sale after taxes?

Answer: $36,776

How to solve it

  1. 1Book value: 22% of the basis is left, so BV = $124,000 × 22% = $27,280.
  2. 2Tax on the gain: ($39,300 − $27,280) × 21% = $2,524.
  3. 3Cash kept = $39,300 − $2,524 = $36,776.
Read the lesson section Watch: Worked problem at 1:00

Slips to watch for: ignored the tax on the gain; taxed the whole sale price; compared the price with the original cost.

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