Bright Corporation purchased residential real estate five years ago for $450,000, of which $50,000 was allocated to the land and $400,000 was allocated to the building. Bright booked straight-line MACRS deductions of $55,000 during the past five years. This year, Bright sells the property for $550,000, of which $100,000 is allocated to the land and $450,000 is allocated to the building. What is

the amount and character of Bright's recognized gain or loss on the sale?

What will be an ideal response?


Bright recognizes $50,000 ($100,000 - $50,000) of Sec. 1231 gain on the sale of the land. Bright also recognizes $105,000 [$450,000 - ($400,000 - $55,000)] on the sale of the building, of which $11,000 (20% of the lesser of (1) $55,000 depreciation claimed, or (2) $105,000 gain recognized) is ordinary income recaptured under Sec. 291. The remaining $94,000 ($105,000 - $11,000) gain on the sale of the building is a Sec. 1231 gain.

Business

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