Jed sells an office building during the current year for $800,000. The building was purchased in 1980 for $350,000. Jed had depreciated the building under an accelerated method, but it is now fully depreciated. Jed has never had any other Sec. 1231 transactions.a.What is the recognized gain or loss on the sale of the building and the character of the gain?b.How will the gain be taxed?c.Assume the building was purchased in 1981 and depreciated under ACRS. How will the gain be taxed?
What will be an ideal response?
| a. | Amount realized | $800,000 |
| Less: Adjusted basis ($350,000 - 350,000) | 0 |
| Gain realized | $800,000 |
| 1250 ordinary income (fully depreciated) | $ 0 |
| 1231 gain-treated as 1250 unrecaptured | $350,000 |
| 1231 gain-treated as LTCG | $450,000 |
| b. | The $300,000 1250 unrecaptured gain is taxed at 25%; the remaining 1231 gain is taxed as LTCG |
| c. | The gain will be subject to Sec. 1245 recapture, rather than Sec. 1250. $350,000 of the gain will |
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