What is Hank's gain or loss on the sale of his truck?
Hank has a gain of $1,000 on the sale of his truck.
Calculating Hank's Gain or Loss
Hank converted his personal truck to business use 2 years ago. He had bought the truck for $40,000 but it was worth $25,000 at the time of conversion. After taking $10,000 of depreciation on the truck, he sold it for $16,000.
To calculate Hank's gain or loss on the sale of his converted truck, we need to consider the original cost, the value at the time of conversion, the depreciation taken, and the selling price.
Detailed Calculation
Hank initially purchased the truck for $40,000, but its value at the time of conversion was $25,000. This means that Hank had already experienced a decrease in the truck's value of $15,000 ($40,000 - $25,000).
After the conversion, Hank took $10,000 in depreciation on the truck. Depreciation is a method used to account for the gradual decrease in value of an asset over time.
Therefore, the adjusted basis of the truck after depreciation would be $25,000 - $10,000 = $15,000.
Hank sold the truck for $16,000. To calculate the gain or loss, we subtract the adjusted basis from the selling price: $16,000 - $15,000 = $1,000.
Based on these calculations, Hank has a gain of $1,000 on the sale of his truck. It's important to note that tax laws and regulations can be complex and subject to change, so it's advisable to consult a tax professional for accurate information and advice regarding specific situations.