On January 4, 1980, Rita Racksaw purchased a warehouse for $200,000 with an estimated life of 40 years to be used in her business. On January 5, 2012, she sold the warehouse for $150,000. She used an accelerated depreciation method resulting in $170,000 depreciation. Straight-line depreciation would have been $160,000. How much and what type of gain will Rita have on the sale?

Question

Quizplus · Accepted Answer

Rita has a realized gain of $120,000 of which $10,000 is recaptured as ordinary income and the remaining
$110,000 is taxed at a maximum of 25% percent.
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Excess depreciation: $170,000 − $160,000 = $10,000. Since this is nonresidential real property acquired before 1981, the applicable percentage is 100 percent, making the amount recaptured as ordinary income $10,000. the remaining $110,000 is taxed up to 25 percent as unrecaptured depreciation.

On January 4, 1980, Rita Racksaw Purchased a Warehouse for $200,000