Philip purchased an apartment building in 2001 for $1,000,000.During 2016,the building is sold for $800,000.The accumulated depreciation on the building as of the sale date was $300,000.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 subtract the adjusted basis of the asset from the selling price. The adjusted basis is calculated as follows:
Adjusted basis = Purchase price - Accumulated depreciation
Adjusted basis = $1,000,000 - $300,000 = $700,000
Gain recognized on the sale = Selling price - Adjusted basis
Gain recognized on the sale = $800,000 - $700,000 = $100,000
Since the building was held for more than one year, the gain is a long-term gain. Since a portion of the accumulated depreciation is for depreciation claimed under the straight-line method, a portion of the gain is unrecaptured Section 1250 gain. Therefore, choice C is correct.

Philip Purchased an Apartment Building in 2001 for $1,000,000