Firm F purchased a commercial office building for business use in 2009 for $965,000. This year, the firm sold the building for $1 million. Accumulated MACRS depreciation through date of sale was $275,000. Which of the following statements is true?

Question

Quizplus · Accepted Answer

The correct answers are based on the calculation of gain and the treatment of depreciation recapture and Section 1231 gain. The original purchase price was $965,000, and the accumulated MACRS depreciation was $275,000, resulting in an adjusted basis of $690,000 ($965,000 - $275,000). The sale price was $1 million, leading to a total gain of $310,000 ($1,000,000 - $690,000). The depreciation recapture (ordinary income) is up to the amount of accumulated depreciation, and the remaining gain is treated as Section 1231 gain, which can be taxed at a more favorable rate. Both corporate and noncorporate taxpayers recognize the $310,000 gain, but the treatment of the gain (between ordinary income and Section 1231 gain) applies specifically to corporations, while noncorporate taxpayers would recognize it as a Section 1231 gain.

Firm F Purchased a Commercial Office Building for Business Use