income. Any remaining gain, if any, is recognized to the extent of unrecaptured depreciation of $950,000 to be taxed at 25 percent. The remaining $50,000 is taxed at a maximum rate of 15 percent.
Selling price$1,000,000Less: Basis ($950,000 - $950,000)0Realized gain$1,000,000Excess depreciation is $0 ($950,000 - $950,000). (a.) Joe has recognized gain of $1,050,000, of which $1,000,000 is recaptured as ordinary income and the 112. remaining $50,000 is taxed at a maximum rate of 15 percent. This is ACRS nonresidential real property depreciated under the statutory accelerated method. Therefore, the lesser of the total depreciation or the realized gain is recaptured as ordinary income. Selling price$1,050,000Less: Basis ($1,000,000 - $1,000,000)0Realized gain$1,050,000(b.) Had straight-line depreciation been taken, Joe would have recognized gain of $1,050,000 of which $1,000,000 is taxed at a maximum rate of 25 percent and the remaining $50,000 is taxed at a maximum rate of 15 percent. Selling price$1,050,000Less: Basis ($1,000,000 - $1,000,000)0Realized gain$1,050,000(a.) Edward has a recognized gain of $116,800. This is the difference between the selling price of $160,000 113. and the basis of $43,200 ($144,000 - $100,800). There is $100,800 recaptured as ordinary income to the extent of total depreciation taken, and the remaining $16,000 is Section 1231 gain. (b.) If the property had been sold for $30,000, there is a realized and recognized loss of $13,200 ($30,000 - $43,200) and it is a Section 1231 loss. Recapture rules do not apply in a realized loss situation.(a.) Joyce has $1,300,000 recognized gain, of which $1,200,000 is recaptured as ordinary income and 114. the remaining $100,000 is 15 percent gain. Her adjusted basis at the time of sale is $0 ($1,200,000 - $1,200,000) and the realized gain is $1,300,000 ($1,300,000 - $0). Since Joyce used the ACRS statutory method, the recapture falls under Section 1245 rules. Therefore, she recaptures $1,200,000 as ordinary income to the extent of the total depreciation taken. The remaining $100,000 is taxed at a maximum rate of 15 percent. (b.) If Joyce uses the optional straight-line method, she has a recognized gain of $1,300,000, and $1,200,000 of it is taxed at a maximum rate of 25 percent and $100,000 is taxed at a maximum rate of 15 percent. The adjusted basis at the time of sale is $0 ($1,200,000 - $1,200,000) and the realized gain is $1,300,000 ($1,300,000 - $0). Since she used the straight-line method, there is no recapture as ordinary income, and $1,200,000 of the gain is recognized at a maximum rate of 25 percent and $100,000 is taxed at a maximum rate of 15 percent.

605
Testbank
Chapter 12

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