Beige Corporation, a C corporation, purchases a warehouse on August 1, 1996, for $1 million. Straight-line depreciation is taken in the amount of $411,750 before the property is sold on June 11, 2012, for $1.2 million. What is the amount and character of the gain recognized by Beige on the sale of the realty?
A)Ordinary income of $0 and § 1231 gain of $611,750.
B)Ordinary income of $411,750 and § 1231 gain of $200,000.
C)Ordinary income of $82,350 and § 1231 gain of $529,400.
D)Ordinary income of $117,650 and § 1231 gain of $494,100.
E)None of the above.

Question

Quizplus · Accepted Answer

The gain recognized by Beige on the sale of the realty is the difference between the selling price of $1.2 million and the adjusted basis of $588,250 ($1 million - $411,750 depreciation). This results in a gain of $611,750. However, since the property was held for more than one year, this gain qualifies as § 1231 gain.

Additionally, since Beige Corporation has taken straight-line depreciation on the property, the depreciation recapture rules under § 1250 apply. The depreciation recapture amount is calculated as the lesser of the depreciation claimed or the gain recognized upon sale. In this case, the depreciation recapture amount is $411,750. This amount is treated as ordinary income.

Therefore, the amount and character of the gain recognized by Beige on the sale of the realty is: 
- Ordinary income of $411,750 (depreciation recapture) 
- § 1231 gain of $529,400 ($611,750 - $411,750)

Beige Corporation, a C Corporation, Purchases a Warehouse on August