During the current year, X sold an office building that was purchased before 1981 and had been used in his business.Depreciation of $12,700 had been claimed.If the straight line method had been used, the depreciation expense would have been $8,500.W's § 1250 recapture potential is $4,200.

Question

Quizplus · Accepted Answer

If a property is sold at a gain and was depreciated using the straight line method, § 1250 recapture potential is calculated by taking the lesser of the gain or the accumulated depreciation based on the straight line method. In this case, the accumulated depreciation based on the straight line method is $8,500, which is less than the gain on the sale. Therefore, the § 1250 recapture potential is $8,500. However, since $12,700 of depreciation had been claimed, the excess depreciation (i.e., $12,700 - $8,500 = $4,200) is subject to depreciation recapture at a maximum tax rate of 25%. Hence, the statement is true.

During the Current Year, X Sold an Office Building That