Philip purchased an apartment building in 2001 for $1,000,000. During 2018, 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

The gain recognized would be calculated as follows:

Sales price = $800,000 
Adjusted basis = $1,000,000 - $300,000 = $700,000

Gain on Sale = $800,000 - $700,000 = $100,000

Since the building is a depreciable asset, the gain is classified as unrecaptured Section 1250 gain. This means that $100,000 of the gain will be taxed at a maximum rate of 25% as ordinary income.

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