George purchased a commercial building in 1999 for $900,000.During 2017,the building is sold for $700,000.The actual accelerated depreciation on the building as of the sale date was $400,000.Straight-line depreciation for the same period would have been $350,000.What is the amount and character of the gain recognized on the sale?

Question

Quizplus · Accepted Answer

To calculate the gain recognized on the sale, we need to compare the adjusted basis (purchase price minus accumulated depreciation) to the sales price.

The adjusted basis in 2017 would be:
$900,000 - $400,000 = $500,000

The amount realized from the sale is $700,000, so the gain is:
$700,000 - $500,000 = $200,000

However, since the building was subject to accelerated depreciation, some of the gain may be treated as unrecaptured Section 1250 gain. To calculate this, we need to compare the amount of accelerated depreciation taken to the straight-line depreciation that could have been taken.

The accelerated depreciation taken would be:
$400,000

The straight-line depreciation for the same period would have been:
$350,000

The difference is:
$400,000 - $350,000 = $50,000

Therefore, the gain should be reported as:
- $50,000 of Section 1250 ordinary income 
- $150,000 of unrecaptured Section 1250 gain.

George Purchased a Commercial Building in 1999 for $900,000