After Tax Salvage Value – What is the Definition and Formula – How to Calculate

Salvage value is the value a company or individual receives, or expects to receive from the sale of an asset at the end of the asset’s useful life.

When a company or an individual sales an asset, the IRS requires them to pay taxes on the amount of the sale that exceeds book value. If a company sold a truck for $2000 and the book value was $1500 then the company would have to pay taxes on the additional $500 that they received over the book value.

If the asset is sold for less than book value the difference will be treated as a loss for tax purposes. The after tax salvage value formula is shown below:

Salvage value = market value
book value = The value that has not yet been depreciated according to the depreciation schedule. For example, if an asset is worth $10,000 and has a 5 year life, according to a straight-line depreciation schedule it would depreciate $2000 per year = $10,000/5. Suppose in year 5 the company that purchased the asset sold it for $1000. What would the after tax salvage value be? See the excel example below

Taxable Salvage Value = Accumulated Depreciation — (Purchase Price — Salvage Value)


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  • Nice piano playing, what a surprising way to teach accounting

    Celine G June 6, 2020 12:41 am Reply
  • The last part of the video incorrectly states After Tax Salvage Value in lieu of Taxable Salvage Value

    Sean Finnegan June 6, 2020 12:41 am Reply

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