Question

Adrian owns a residential apartment building. Although he enjoys managing the building, real estate prices in his area have sky-rocketed recently, and Adrian thinks he could make a good profit by selling the building. Adrian originally purchased the building for $800,000 and took depreciation deductions of $500,000. Straight-line depreciation would have been $450,000. What are the tax consequences if Adrian sells the building for $3,000,000?

Adrian will have ordinary income of $50,000.

Adrian will have $500,000 of unrecaptured Section 1250 gain.

Adrian will have capital gains of $1,700,000.

None of the above.

Answer 1

Ans is

Adrian will have ordinary income of $50,000

Reason:-

The difference between depreciation deduction in excess of straight-line depreciation is taxable.

=$500,000-$450,000 = $50,000

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