Book asset?

Question

If an asset had a book value of $1,000 and could be scrapped for $1200, __________.

a. the tax impact would be zero
b. tax would have to be paid on the $200
c. taxes would be reduced because of the $200 loss
d. taxes would be paid on the average value of $1100

Answer 1

b

An asset carried at $1000 and sold for $1200 results in a $200 gain, gains are income per the code, therefore taxable.

Answer 2

$200 gain -- assuming you mean $1,000 as the tax basis of the asset.

If you're talking about "book value" as your own computed carrying value of the asset, then you probably have an even larger tax gain.

The IRS uses what they call the MACRS tables to compute depreciation on assets. You can get these tables at IRS.gov. Generally speaking they result in higher initial depreciation than what would normally be computed for book accounting purposes.