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 2002 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 sale of the office building qualifies as a Section 1231 gain since it was used in the Marleys' trade or business and held for more than one year. The $500,000 gain will be subject to ordinary income tax rates to the extent of the previously deducted MACRS depreciation of $300,000 and the remaining gain of $200,000 will be treated as Section 1231 gain. Therefore, the answer is B.

Mr and Mrs