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 highest tax bracket;on his current year tax return,he should report:

Question

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The sale of the apartment building results in a Section 1231 gain because it is a depreciable asset held for more than one year. The gain is calculated by taking the selling price ($220,000) and subtracting the adjusted basis ($200,000 - $62,500 = $137,500). The Section 1231 gain is therefore $82,500 ($220,000 - $137,500).

The unrecaptured depreciation is the amount of depreciation taken over the years that is subject to a maximum tax rate of 25 percent upon the sale of the property. In this case, the unrecaptured depreciation is $62,500. Therefore, Ben must report a Section 1231 gain of $20,000 and unrecaptured depreciation taxed at 25 percent of $62,500 on his current year tax return.

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