AC553_W7_Solution12_52 - recaptured as ordinary income The...

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1 Problem 12-52 Solution Section 1250 Property: Disposition of Property (¶12,825, ¶12,831, ¶12,845, and ¶12,855) Harold Hunch purchased Section 1250 commercial property on January 1, 1980, and sold it on January 1, 2007, at a gain of $250,000. Depreciation taken was $500,000; straight-line depreciation would have been $300,000. a. How should Harold treat the gain or loss? b. What would your answer have been if the property had been purchased in 1985 and was depreciated under the ACRS prescribed method? c. What would your answer have been in (a) if the property had been residential rental housing? d. What would your answer have been if the property was residential rental housing, was purchased in 1985, and was depreciated under the ACRS prescribed method? Solution: a. Of the $250,000 gain realized and recognized, $200,000 ($500,000 1 $300,000) is recaptured as ordinary income. The remaining $50,000 is recaptured subject to the
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Unformatted text preview: recaptured as ordinary income. The remaining $50,000 is recaptured subject to the maximum rate of 25 percent. This is commercial real property acquired before 1981 (pre-ACRS), the excess depreciation is recaptured as ordinary income and the remaining gain, not to exceed unrecaptured depreciation, is taxed at the maximum rate of 25 percent. b. If this is commercial property depreciated under the ACRS statutory (accelerated) method, the total amount of recognized gain of $250,000 is recaptured as ordinary income. In this case, there is recapture up to the total amount of depreciation taken but not to exceed recognized gain. c. If the property is residential rental housing acquired before 1981 (pre-ACRS), the answer is the same as in (a). d. The answer is the same as in (a) and (c) if it is residential rental housing depreciated under the ACRS statutory method....
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