Mr. and Mrs. Marley operate a small business. This year, the Marleys sold a commercial office building used in their business for $1.1 million. They purchased the building in 2006 for a cost of $900,000 and have deducted $300,000 MACRS depreciation through date of sale. The Marleys should characterize the $500,000 gain recognized on sale as:

Question

Quizplus · Accepted Answer

The gain should be characterized as a Section 1231 gain because the building was used in the Marleys' business and held for more than one year. The sale resulted in a gain of $500,000, which is the amount realized ($1.1 million) minus the adjusted basis ($600,000 - $900,000 purchase price + $300,000 MACRS depreciation). Since it is a Section 1231 gain, it will be classified as long-term capital gain if there is a net Section 1231 gain for the year.

Mr and Mrs