McGraw-Hill's Taxation of Individuals 3rd Edition by Brian Spilker,Benjamin Ayers,John Robinson,Edmund Outslay ,Ronald Worsham,John Barrick,Connie Weaver

Exercise 62

{Research} Ken sold a rental property for $500,000.He received $100,000 in the current year and $100,000 each year for the next four years.$400,000 of the sales price was allocated to the building and the remaining $100,000 was allocated to the land.Ken purchased the property several years ago for $300,000.When he initially purchased the property, he allocated $225,000 of the purchase price to the building and $75,000 to the land.Ken has claimed $25,000 of depreciation deductions over the years against the building.Ken had no other sales of §1231 or capital assets in the current year.For the year of the sale, determine Ken's recognized gain or loss, the character of Ken's gain, and calculate Ken's tax due because of the sale (assuming his marginal ordinary tax rate is 35 percent).( Hint: see the examples in Reg.§1.453-12.)