Kathleen purchased an apartment building six years ago for $275,000. The building was depreciated using the...

Kathleen purchased an apartment building six years ago for $275,000. The building was depreciated using the straight-line method. The building was recently sold for $285,000; her adjusted basis at the time of the sale was $215,000. Ignoring the Medicare tax, if any, what are the tax implications for Kathleen?

Expert Solution

As per Section 1250 "Real property" used in trade or business if held for over 12 months,

Gain arising from sale of such asset will be taxed as follows;

Upto the extent of SLM depreciation - Unrecaptured gain - taxable @ 25%

Difference between depreciation method followed and SLM depreciation - Recaptured gain - Ordinary gain/(loss)

Gain in excess of above two - Section 1231 gain/(loss)

Particulars	$
Original cost of building	$ 275,000
Less Adjusted basis as on day of sale	$ 215,000
Total depreciation till date	$ 60,000


Sales consideration	285000
Less Adjusted basis as on day of sale	$ 215,000
Profit on sale	$ 70,000
Bifurcation of profit
Sec 1250 Gain taxable @ 25%	$ 60,000
Sec 1231 Gain (Capital gain - 0/15%/20%)	$ 10,000

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ekkarill92 answered 2 years ago

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