Assume that a building is subject to § 1250 depreciation recapture because bonus depreciation [§ 168(k)] was used. The building is destroyed in a hurricane, which is the taxpayer's only casualty or theft for the year.In which of the following situations could there be a § 1250 depreciation recapture gain?
A)There is a loss because the insurance recovery is less than the adjusted basis.
B)There is a gain because the insurance recovery exceeds the adjusted basis.
C)Because of the length of time the building has been held, there is no remaining additional depreciation.
D)There is no insurance recovery and the adjusted basis of the building is greater than zero.
E)None of these.

Question

Quizplus · Accepted Answer

If the insurance recovery exceeds the adjusted basis, there would be a gain and therefore a § 1250 depreciation recapture gain. If there is a loss due to insurance recovery being less than the adjusted basis, there would be no gain or loss to recapture. The length of time the building has been held and remaining depreciation do not affect the potential for § 1250 depreciation recapture gain. If there is no insurance recovery but the adjusted basis is greater than zero, there would be a loss but no gain to recapture.

Assume That a Building Is Subject to § 1250 Depreciation