Assume a building is subject to § 1250 depreciation recapture because bonus depreciation [§ 168(k) was used]. The building is destroyed in a hurricane and this is the taxpayer's only casualty or theft for the year. In which of the following situations could there be a § 1250 depreciation recapture gain?

Question

a. There is a loss because the insurance recovery is less than the adjusted basis.
b. There is a gain because the insurance recovery exceeds the adjusted basis.
c. Because of the length of time the building has been held, there is no remaining additional depreciation.
d. There is no insurance recovery and the adjusted basis of the building is greater than zero.
e. None of the above.

Answer 1

b
RATIONALE: In order for there to be § 1250 depreciation recapture, the disposition must be at a gain, and total accelerated depreciation must exceed straight-line depreciation. Section 1250 depreciation recapture applies before the casualty and theft rules. Answers c. and d. both indicate there is no remaining additional depreciation. Only answer b. could have additional depreciation and there is a gain.