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Video instructions and help with filling out and completing Can Form 4797 Careers

Instructions and Help about Can Form 4797 Careers

Hello, in this lecture, we're going to talk about depreciation recapture and how it can affect a business. At the end of this, we will be able to explain what depreciation recapture is, discuss potential tax effects of depreciation recapture, and provide an example to illustrate depreciation recapture. As always, it is important to seek advice from a professional when considering the implications of depreciation recapture on a business. We will be looking at a specific scenario in order to understand the effects of depreciation recapture. To begin, let's discuss the purchase of a piece of equipment. Suppose we purchase this equipment for $500,000. We will record this purchase on our books by crediting $500,000. The fair market value of the equipment is considered to be $500,000. It is important to note that even though we paid cash for the equipment, we do not immediately expense it. Instead, we need to capitalize the machine and expense it gradually over a certain period of time. This means that we will record depreciation for the machine over the period from its purchase to its sale. Depreciation represents the reduction in value of the machine over time. In this problem, let's assume that the total depreciation over the machine's lifespan is $300,000. This depreciation expense will be recorded on the income statement and will provide a deduction for taxes at theordinary income rates. On the balance sheet, the accumulated depreciation account will reflect the total depreciation expense over time. In our example, the machine's book value will be $200,000 ($500,000 - $300,000). It is important to recognize that the machine still physically exists and has not been reduced in quantity, but its value has decreased. Now, when we sell the machine for $250,000, we need to determine the gain or loss from the...