Owl Corporation, a C corporation, recognizes a gain on the sale of a § 1250 asset in the current year. Owl had used the straight-line method for depreciating the realty. Some of Owl's gain on the sale of the realty will be treated as depreciation recapture (ordinary income).

Question

Quizplus · Accepted Answer

When a C corporation sells a § 1250 asset (real property), a portion of the gain may be treated as depreciation recapture and taxed as ordinary income rather than capital gains. This is because the depreciation deductions taken on the asset during its use reduce its cost basis and increase the amount of gain subject to recapture upon sale.

Owl Corporation, a C Corporation, Recognizes a Gain on the Sale