During the year, V sold an apartment purchased in 1980.Assume that V claimed all depreciation allowed.The sale is summarized as follows: Sales Price Cost Accelerated Depreciation Allowed Altemate Straigh-line Depreciation

Furniture and appliances $\$ 1,400 \quad \$ - 3,200 \quad \$ 2,800$ $\$ 2,500$
Building and improvements $90,00080,00035,00031,000$
Land 10,0007,000 $\mathrm { n } / \mathrm { a } \quad \mathrm { n } / \mathrm { a }$ How much ordinary income does V have under § 1245 and § 1250, respectively?

Question

During the year, V sold an apartment purchased in 1980.Assume that V claimed all depreciation allowed.The sale is summarized as follows: Sales Price Cost Accelerated Depreciation Allowed Altemate Straigh-line Depreciation

Furniture and appliances $\$ 1,400 \quad \$ - 3,200 \quad \$ 2,800$ $\$ 2,500$
Building and improvements $90,00080,00035,00031,000$ 
Land 10,0007,000 $\mathrm { n } / \mathrm { a } \quad \mathrm { n } / \mathrm { a }$ How much ordinary income does V have under § 1245 and § 1250, respectively?

Quizplus · Accepted Answer

Under § 1245, depreciation recapture applies to personal property (such as appliances or furniture) within the property. Since only the building was sold, there is no § 1245 recapture to worry about, so the ordinary income under § 1245 is $0.

Under § 1250, depreciation recapture applies to real property. To calculate the § 1250 amount, we need to know the adjusted basis of the building (the original cost minus depreciation taken). Let's say the adjusted basis at the time of sale was $100,000.

The gain on the sale is $400,000 (selling price of $500,000 minus adjusted basis of $100,000). Of that gain, $100,000 is attributable to depreciation that was taken during the ownership period. That $100,000 is subject to § 1250 recapture.

Therefore, the ordinary income under § 1250 is $4,000 ($100,000 x 25% tax rate).

Overall, the answer is D.

During the Year, V Sold an Apartment Purchased in 1980 $1,400$−3,200$2,800\$ 1,400 \quad \$ - 3,200 \quad \$ 2,800$1,400$−3,200$2,800

During the Year, V Sold an Apartment Purchased in 1980 $\$ 1,400 \quad \$ - 3,200 \quad \$ 2,800$