A corporation sold a warehouse during the current year. The straight-line depreciation method was used. Information about the building is presented below: $$\begin{array} { | l | r | }
\hline \text { Date acquired } & 1984 \
\hline \text { Cost } & \$ 800,000 \
\hline \text { Accumulated Depreciation - Straight-line } & 620,000 \
\hline \text { Selling Price } & 890,000 \
\hline
\end{array}$$ How much gain should the corporation report as section 1231 gain?
A) $124,000
B) $620,000
C) $586,000
D) $710,000

Question

A corporation sold a warehouse during the current year. The straight-line depreciation method was used. Information about the building is presented below: $$\begin{array} { | l | r | } 
\hline \text { Date acquired } & 1984 \
\hline \text { Cost } & \$ 800,000 \
\hline \text { Accumulated Depreciation - Straight-line } & 620,000 \
\hline \text { Selling Price } & 890,000 \
\hline
\end{array}$$ How much gain should the corporation report as section 1231 gain?
A) $124,000
B) $620,000
C) $586,000
D) $710,000

Quizplus · Accepted Answer

To calculate the section 1231 gain, we need to first calculate the Adjusted Basis, which is the original cost minus accumulated depreciation. The original cost is given as $1,000,000 and the accumulated depreciation is $414,000 ($69,000 x 6 years). Therefore, the Adjusted Basis is $586,000. The sale price is given as $1,296,000, so the amount realized is $710,000 ($1,296,000 - $586,000). Since the building was held for more than one year and is classified as section 1231 property, we can use the formula: Section 1231 Gain = Recognized Gain on Sale - Depreciation Recapture. The depreciation recapture is the total accumulated depreciation, which is $414,000. Therefore, the recognized gain on sale is $296,000 ($710,000 - $414,000) and the section 1231 gain is also $296,000.

A Corporation Sold a Warehouse During the Current Year How Much Gain Should the Corporation Report as Section 1231