Mr. and Mrs. Churchill operate a small business. This year, the Churchills sold a commercial office building used in their business for $1.5 million. They purchased the building in 1996 for a cost of $1.4 million and had deducted $538,000 MACRS depreciation through date of sale. The Churchills should characterize the $638,000 gain recognized on sale as:

Question

Quizplus · Accepted Answer

The gain should be characterized as a Section 1231 gain, as the property was held for more than one year and used in the Churchills' trade or business. The amount of gain equal to the accumulated depreciation (i.e. $538,000) is ordinary income, while any remaining gain is Section 1231 gain. Therefore, the full gain of $638,000 should be characterized as Section 1231 gain.

Mr and Mrs