Answer the following statements true (T) or false (F)

Question

1. Section 1250 does not apply to assets sold or exchanged at a loss.
2. In addition to the normal recapture rules of Sec. 1250, corporations which sell depreciable real estate are subject to additional recapture rules of Sec. 291.
3. The additional recapture under Sec. 291 is 25% of the difference between the amount that would have been recaptured if the property was Sec. 1245 property and the actual recapture under Sec. 1250.
4. Frisco Inc., a C corporation, placed a building in service in 2002 and deducted straight-line depreciation under the MACRS system in the normal manner. It sold the building this year for a substantial gain. Because straight-line depreciation was used, Frisco will not need to recognize any ordinary gain.
5. Trena LLC, a tax partnership owned equally by Trent and Nina, sells a building it had placed in service five years ago. Sec. 291 will require that part of the gain (up to 20% of accumulated depreciation) be treated as ordinary gain, with the balance treated as Sec. 1231 gain.

Answer 1

1. TRUE
See Topic Review I:13-2.
2. TRUE
There is an extra layer of depreciation recapture for buildings that is provided by Sec. 291.
3. FALSE
The correct rate is 20%.
4. FALSE
Sec. 1250 will not require any depreciation recapture, but Sec. 291 requires recapture for C corporations.
5. FALSE
Sec. 291 recapture does not apply to noncorporate taxpayers.