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Three years ago, Stock Tek purchased some five-year MACRS property for $82,600
Three years ago, Stock Tek purchased some five-year MACRS property for $82,600. Today, it is selling this property for $31,500. How much tax will the company owe on this sale if the tax rate is 34 percent? The MACRS allowance percentages are as follows, commencing with Year 1: 20.00, 32.00, 19.20, 11.52, 11.52, and 5.76 percent.
Expert Solution
The depreciation in year 1 will be 82,600 * 0.2 = $16,520
The depreciation in year 2 will be 82,600 * 0.32 = $26,432
The depreciation in year 3 will be 82,600 * 0.192 = $15,859
The accumulated depreciation in years 1-3 will be 16,520 + 26,432 + 15,859 = $58,811
The book value (BV) at the time of sale will be 82,600 - 58,811 = $23,789
The tax owed will be (Sale price - BV) * Tax rate = (31,500 - 23,789) * 0.34 = $2,622
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