George purchased a commercial building in 1984 for $900,000.During 2013,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

The formula to calculate the gain recognized on the sale is:
Sale Price - Adjusted Basis = Recognized Gain

The adjusted basis is the original cost of the property minus any depreciation claimed over the years. In this case, the adjusted basis is:
$900,000 - $400,000 (accelerated depreciation) - $350,000 (straight-line depreciation) = $150,000

Therefore, the recognized gain is:
$700,000 - $150,000 = $550,000

Of this recognized gain, $50,000 is considered Section 1250 ordinary income (the amount of straight-line depreciation claimed over the years) and $150,000 is considered unrecaptured Section 1250 gain (the excess of accelerated depreciation over straight-line depreciation). The remaining $350,000 is considered capital gain.

Therefore, the correct answer is C.

George Purchased a Commercial Building in 1984 for $900,000