Rontco Corporation (a C corporation)purchased an office building for $400,000 for use in its business about ten years ago.The building is sold during the current year for $350,000.Total MACRS depreciation allowed for the building was $125,000.This is the only business asset sold by the corporation over the past six years.As result of the sale,how much ordinary gain will Rontco Corporation report?
A)$15,000
B)$25,000
C)$75,000
D)$0

Question

Quizplus · Accepted Answer

The ordinary gain is calculated as the lesser of the total depreciation taken ($125,000) or the gain realized ($75,000). Since the gain realized is $75,000, the ordinary gain is $75,000. However, the question asks for the ordinary gain, which is the depreciation recapture under Section 1250 for real property, typically taxed as ordinary income up to the amount of depreciation taken. Here, the gain is $75,000, but the sale resulted in a loss ($400,000 - $350,000 = $50,000 loss), so the ordinary gain is $15,000 (depreciation recapture limited to the gain realized).

Rontco Corporation (A C Corporation)purchased an Office Building for $400,000