Albert is in the 35% marginal tax bracket. He sold a building in the current year for $450,000. Albert received $110,000 cash at closing, the buyer assumed Albert's mortgage for $120,000, and the buyer gave Albert a 6% note for $220,000 due in two years. The Federal rate was 6%. Albert's basis in the building was $180,000 ($500,000 cost - $320,000 accumulated straight-line depreciation). Assuming he did not elect out of the installment method, Albert's § 1231 gain and gain taxed at the 25% rate in the year of sale are what amounts?
Section 1231 Gain Unrecaptured § 1250 Gain Taxed at 25%

Question

Albert is in the 35% marginal tax bracket. He sold a building in the current year for $450,000. Albert received $110,000 cash at closing, the buyer assumed Albert's mortgage for $120,000, and the buyer gave Albert a 6% note for $220,000 due in two years. The Federal rate was 6%. Albert's basis in the building was $180,000 ($500,000 cost - $320,000 accumulated straight-line depreciation). Assuming he did not elect out of the installment method, Albert's § 1231 gain and gain taxed at the 25% rate in the year of sale are what amounts? ​
Section 1231 Gain Unrecaptured § 1250 Gain Taxed at 25%

Quizplus · Accepted Answer

Albert's total gain is $270,000 ($450,000 - $180,000 basis). The unrecaptured § 1250 gain, which is the portion of the gain attributable to depreciation, is $90,000 (the lesser of the total gain or the accumulated depreciation of $320,000). This gain is taxed at a maximum rate of 25%. The entire gain is a § 1231 gain, and since the unrecaptured § 1250 gain is $90,000, it is also taxed at the 25% rate.

Albert Is in the 35% Marginal Tax Bracket