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 1999 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 gain from the sale of the commercial office building would be classified as a Section 1231 gain because it is a gain from the sale of property used in the trade or business and held for more than one year. The fact that the Marleys took MACRS depreciation on the building does not change its classification as Section 1231 property. Therefore, choice (B) is the correct answer. Choice (A) is incorrect because capital gains are generally from the sale of assets held for investment purposes, not those used in a trade or business. Choice (C) is incorrect because the entire gain is characterized as Section 1231 gain, not a portion as ordinary gain. Choice (D) is incorrect because there is a gain that needs to be characterized for tax purposes.

Mr and Mrs