Bateman Corporation sold an office building that it used in its business for $800,000.Bateman bought the building ten years ago for $600,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Bateman's gain or loss?

Question

Quizplus · Accepted Answer

The amount realized by Bateman Corporation is $800,000, and the adjusted basis of the property is $400,000 ($600,000 cost - $200,000 depreciation). Therefore, the realized gain is $400,000 ($800,000 - $400,000).

Since Bateman used the property in its business, the $200,000 of depreciation claimed is recaptured as ordinary income. The remaining $200,000 gain is considered §1231 gain, which is subject to capital gain treatment.

Therefore, the amount and character of Bateman Corporation's gain or loss is $40,000 ordinary income (recaptured depreciation) and $360,000 §1231 gain (capital gain).

Bateman Corporation Sold an Office Building That It Used in Its