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What is the nature of the gain or loss from the Magenta sale

Magenta, Inc., purchases used equipment at auction, refurbishes it, and then resells it at a profit. Magenta purchased a 500,000-pound metal-grinding machine for $1.8 million, spent $600,000 refurbishing it over two years, and then sold it for $4 million. What is the nature of the gain or loss from this transaction?

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If Magenta's business activities consist of buying, refurbishing and selling equipment, and that is what they do (supported by their SIC code), then the asset purchased is inventory. If it is inventory, it is part of an ordinary trade or business. If it is a trade or business, then the activity is reported as business operations, ...

Solution Summary

The 239 word solution discusses the business activities of Magenta by presenting several possibilities as to what type of taxable event the sale is. Each lists the conditions and the nature of the gain or loss.