Question

Ken sold a rental property for $737,000. He received $113,000 in the current year and $156,000 each year for the next four years. Of the sales price, $480,000 was allocated to the building and the remaining $257,000 was allocated to the land. Ken purchased the property several years ago for $573,000. When he initially purchased the property, he allocated $420,000 of the purchase price to the building and $153,000 to the land. Ken has claimed $20,250 of depreciation deductions over the years against the building.

Ken had no other sales of §1231 or capital assets in the current year.

a) For the current year, determine the amount of Ken's total recognized gain or loss.

B) For the current year, determine the character of the gain or loss and calculate Ken’s total tax due because of the sale (assuming his marginal ordinary tax rate is 32 percent).

Answer 1

Solution:
(a) Determination of amount f recognized gain or loss
	Description	Amount($)
1	Amount Realised	737,000
2	Adjusted Basis ($573,000-20,250)	552,750
3	Gain Realized	184,250
4	Gross profit percentage	25
5	Payment received in current year	113,000
	Gain ecognized in current year	28,250
(b) Character of the gain and tax due
	Description	Amount($)
	Unrecaptured gain	20,250
	Other 1231 gain	28,250
	Tax on Unrecaptured gain @ maximum 25%	5062.5
	Tax on Other 1231 gain @ 15%	4237.5
	Total tax due	9300