Booth Corporation sells a building classified as a residential rental property for $200,000. The MACRS straight-line depreciation taken is $20,000 and the adjusted basis of the building is $170,000. Booth Corporation must recognize ordinary income of

Question

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The ordinary income recognized is the lesser of the depreciation taken ($20,000) or the gain on the sale ($30,000), which is $20,000. However, since the adjusted basis is $170,000 and the sale price is $200,000, the gain is $30,000, but only $4,000 is ordinary income due to the unrecaptured Section 1250 gain rules.

Booth Corporation Sells a Building Classified as a Residential Rental