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 1997 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 on sale of the commercial office building should be characterized as a Section 1231 gain, as it was held for more than one year and is used in a trade or business. The amount of gain attributable to the MACRS depreciation taken (i.e. $538,000) would be characterized as ordinary income, but the remaining gain ($100,000) would be a Section 1231 gain. Therefore, choice C is not correct as it mischaracterizes the gain as both ordinary and Section 1231.

Mr and Mrs