Kuong Inc. sold a commercial office building used in the corporate business for $1.5 million. Kuong purchased the building in 1997 for a cost of $1.4 million and had deducted $538,000 MACRS depreciation through date of sale. Kuong should characterize the $638,000 gain recognized on sale as:

Question

Quizplus · Accepted Answer

First, we need to calculate the adjusted basis of the building, which is the original cost minus the accumulated depreciation as of the date of sale:
Adjusted Basis = Original Cost - Accumulated Depreciation
Adjusted Basis = $1.4 million - $538,000 = $862,000
Next, we need to calculate the amount of gain that qualifies as Section 1231 gain, which is generally gain from the sale or exchange of property used in a trade or business:
Section 1231 Gain = Sale Price - Adjusted Basis
Section 1231 Gain = $1.5 million - $862,000 = $638,000
Since the entire gain qualifies as Section 1231 gain, the answer is B, which shows the breakdown of the gain as $107,600 ordinary gain and $530,400 Section 1231 gain.

Kuong Inc Sold a Commercial Office Building Used in the Corporate