Sally acquired an apartment building in 1999 for $150,000 and sold it for $410,000 in 2014. At the time of the sale, there is $65,000 of accumulated straight-line depreciation on the apartment building. Assuming Sally is in the 35 percent tax bracket for ordinary income, how much of her gain is taxed at 15 percent?

Question

Quizplus · Accepted Answer

Sally's adjusted basis for calculating gain is calculated as follows:

Adjusted basis = original cost - accumulated depreciation
Adjusted basis = $150,000 - $65,000
Adjusted basis = $85,000

Sally's total gain on the sale is calculated as follows:

Total gain = selling price - adjusted basis
Total gain = $410,000 - $85,000
Total gain = $325,000

Since Sally is in the 35% tax bracket for ordinary income, her long-term capital gains tax rate is 15%. The amount of the gain that is taxed at 15% is calculated as follows:

Amount taxed at 15% = total gain - (accumulated depreciation * tax rate)
Amount taxed at 15% = $325,000 - ($65,000 * 0.15)
Amount taxed at 15% = $325,000 - $9,750
Amount taxed at 15% = $315,250

Therefore, $260,000 of Sally's gain is taxed at 15%. The answer is C.

Sally Acquired an Apartment Building in 1999 for $150,000 and Sold