Martin owns equipment used in his trade or business purchased four years ago for $200,000. Martin sells the equipment in the current year for $110,000 when its adjusted basis is $52,000. No other sales or exchanges are made this year or the preceding five years. His tax rate is 35% for all years since the year of purchase.
a. Determine the increase in Martin’s AGI for the current year as a result of the sale if Sec. 1245 did not exist.
b. Determine the increase in Martin’s AGI for the current year as a result of the sale if Sec. 1245 does exist.
c. Given that Sec. 1245 does exist, how much higher is his tax in (b) than in (a)?