Beige Corporation, a C corporation, purchases a warehouse on August 1, 2000, for $1 million. Straight-line depreciation is taken in the amount of $411,750 before the property is sold on June 11, 2016, for $1.2 million. What is the amount and character of the gain recognized by Beige on the sale of the realty?
A)Ordinary income of $0 and § 1231 gain of $611,750.
B)Ordinary income of $411,750 and § 1231 gain of $200,000.
C)Ordinary income of $82,350 and § 1231 gain of $529,400.
D)Ordinary income of $117,650 and § 1231 gain of $494,100.
E)None of the above.

Question

Quizplus · Accepted Answer

The gain is calculated as the sale price ($1.2 million) minus the adjusted basis ($1 million - $411,750 depreciation = $588,250), resulting in a gain of $611,750. The ordinary income portion is the lesser of the depreciation taken ($411,750) or the gain ($611,750), which is $411,750. However, since the property is real estate, only 20% of the depreciation recapture is ordinary income, which is $82,350. The remaining gain is a § 1231 gain of $529,400.

Beige Corporation, a C Corporation, Purchases a Warehouse on August