Determine the amount realized and the character by solar corporation on the sale of the following equipment: pv1 purchased in 2012 for $10,000 and sold for $8,000. pv1 has an adjusted basis of $5,000. pv2 purchased in 2013 for $25,000 and sold for $16,000. pv2 has an adjusted basis of $18,000. assume solar corporation had ordinary income of $35,000 from all other sources and no other asset sales or transactions. how does the sale of pv1 and pv2 affect ordinary income?

The effect on the sale of PV1 would be $3,000 and on PV2 it is $1,500

Explanation:

For computing the effect on the ordinary income, we have to do the following adjustment which is shown below:

PV1 = Sale price-adjusted basis

      = $8,000 - $5,000

      = $3,000

The $3,000 represent the short term capital gain, and it is a short term capital gain because the equipment is sold in less than 1 year  

PV2 = Sale price-adjusted basis

       = $16,000 - $18,000

       = - $2,000

The $ -2,000 represents the long term capital loss , and it is a long term capital loss because the equipment is sold in more than 1 year  

So, the effect on the sale of PV1 would be $3,000 and on PV2 it is $1,500 because the deduction is allowed to a maximum of $1,500

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