The company is considering either selling the machine or exchanging the old machine for a new machine on January 31st of 2018 (year 3). The new machine is expected to cost 480,000 the fair value of the old machine at january 31st 2018 is expected to be 420,000 with a net tax basis of 0. Explain the tax effect
1. The company can sell the machine for 420,000 in cash and use the proceed from the sale plus borrow 60,000 to purchase the new machine.
a. Compute the amount realized and recognized for tax purposes. Determine the character of the gain/loss for tax purposes?
b. What is the tax basis of the machine newly aquired in 2018?