Octet Corporation placed a small storage building in service in 1999.Octet's original cost for the building is $800,000 and the cost recovery deductions are $300,000.This year the building is sold for $1,100,000. The amount and character of the gain are
A)Ordinary gain of $60,000 and Sec.1231 gain of $540,000.
B)Ordinary gain of $300,000 and Sec.1231 gain of $300,000.
C)Ordinary gain of $600,000.
D)Sec.1231 gain of $600,000.

Question

Quizplus · Accepted Answer

The gain is calculated as the selling price ($1,100,000) minus the adjusted basis ($800,000 - $300,000 = $500,000), resulting in a gain of $600,000. The $300,000 of cost recovery deductions are recaptured as ordinary income under Sec. 1245, and the remaining $300,000 is a Sec. 1231 gain.

Octet Corporation Placed a Small Storage Building in Service in 1999.Octet's