Aneta sold an apartment building for $713,470 in 2017.She purchased the building in 2011 for $600,000 and has taken $151,806 in depreciation on the building.Assuming Aneta is in the 33% tax bracket,how is her gain taxed?

Question

Quizplus · Accepted Answer

To determine the tax on the gain, we first need to calculate the basis for the property. Aneta purchased the building for $600,000 and took $151,806 in depreciation, so her adjusted basis is $448,194 ($600,000 - $151,806).

The gain on the sale is the selling price minus the adjusted basis, or $713,470 - $448,194 = $265,276.

Since Aneta is in the 33% tax bracket, the gain will be taxed at a maximum rate of 25%. The $265,276 gain will be split into two portions - the portion subject to ordinary income tax (depreciation recapture) and the portion subject to capital gains tax.

The depreciation recapture portion is calculated as the lesser of the depreciation taken or the gain, which in this case is $151,806. This portion will be taxed at a maximum rate of 25%, or $37,951.50.

The remaining gain of $113,470 will be taxed at a maximum rate of 15%, or $17,020.50.

Therefore, the total tax on the gain will be $37,951.50 + $17,020.50 = $54,972.

The best choice is D because it correctly calculates the tax on the gain by splitting it into two portions and using the appropriate tax rates for each portion.

Aneta Sold an Apartment Building for $713,470 in 2017