A taxpayer purchased business machinery on February 16, 2012, for $25,000. The machinery was sold for $26,000 on November 10, 2013.
Depreciation information is as follows:
Accelerated depreciation taken $9,000
Straight-line depreciation (7-year life) $5,000
What is the gain or loss on the sale of this machinery, and how will it be treated on the tax return?
1) $4,000 ordinary income and $6,000 Section 1231 gain
2) $4,000 ordinary income and $6,000 long-term capital gain
3) $9,000 ordinary income and $1,000 Section 1231 gain
4) $9,000 ordinary income and $1,000 long-term capital gain
5) None of the above