Karl Paid $200,000 for Business-Use Equipment

Karl paid $200,000 for business-use equipment. Using straight-line depreciation, his deduction would have been $22,000, but Karl uses MACRS depreciation and deducts $37,500 for the first two years of usage. At the beginning of the third year, Karl sells the equipment for $190,000. How much of the gain is recaptured under Section 1245 as ordinary income?

A) $- 0 -
B) $5,500
C) $22,000
D) $27,500
E) $37,500

Correct Answer:

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