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 2001 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 should be characterized as a Section 1231 gain because the property was held for more than one year and used in the Marleys' trade or business. MACRS depreciation is recaptured as ordinary income up to the amount of depreciation taken, so the $300,000 of MACRS depreciation is ordinary income. The remaining $200,000 of gain is Section 1231 gain.

Mr and Mrs