Sylvio purchased an apartment building as an investment in January 2011 for $383,500 and sold it for $475,000 in 2017.He reported $68,436 of allowed accumulated straight-line depreciation.If Sylvio is in the highest tax bracket for ordinary income,how much of his gain qualifies for preferential tax treatment?
A)$0.
B)$68,436.
C)$91,500.
D)$159,936.

Question

Quizplus · Accepted Answer

The gain qualifying for preferential tax treatment is the difference between the selling price and the adjusted basis, which is the purchase price minus accumulated depreciation. The adjusted basis is $383,500 - $68,436 = $315,064. The selling price is $475,000, so the total gain is $475,000 - $315,064 = $159,936. However, the part of the gain equal to the accumulated depreciation ($68,436) is taxed as ordinary income (unrecaptured Section 1250 gain), and the remaining gain ($159,936 - $68,436 = $91,500) qualifies for preferential tax treatment (long-term capital gains).

Sylvio Purchased an Apartment Building as an Investment in January