Ben purchased an apartment building about 10 years ago, for $200,000. The building has been depreciated over the appropriate recovery period using the straight-line method. In the current year, the building was sold for $220,000, when the accumulated depreciation was $62,500. Ben is in the 32% tax bracket; on his current year tax return, he should report:

Question

Quizplus · Accepted Answer

The correct answer is D) Section 1231 gain of $20,000 and "unrecaptured depreciation" taxed at 25 percent of $62,500. This is because the gain on the sale of the property is calculated by subtracting the adjusted basis (original cost minus accumulated depreciation) from the sale price. The $20,000 gain is treated as Section 1231 gain, which is generally taxed at favorable capital gains rates. The $62,500 of depreciation taken on the property is subject to recapture and taxed at a maximum rate of 25%, as it is considered "unrecaptured Section 1250 gain" for real property.

Ben Purchased an Apartment Building About 10 Years Ago, for $200,000