George purchased a commercial building in 1994 for $900,000. During 2014, the building is sold for $700,000. The actual accelerated depreciation on the building as of the sale date was $400,000. Straight-line depreciation for the same period would have been $350,000. What is the amount and character of the gain recognized on the sale?

Question

Quizplus · Accepted Answer

The gain is calculated as the difference between the sale price and the adjusted basis (purchase price minus depreciation). The adjusted basis is $500,000 ($900,000 - $400,000). The gain is $200,000 ($700,000 - $500,000). The excess depreciation ($400,000 - $350,000 = $50,000) is Section 1250 ordinary income, and the remaining $150,000 is unrecaptured Section 1250 gain.

George Purchased a Commercial Building in 1994 for $900,000