Question

Carl owns an office building and land that are used in his trade business. The office building and land were acquired in 1978 for $1,100,000 and $80,000 respectively. During the current year, the properties are sold for $1,180,000 with 15% of the selling price being allocated to the land. The assets as shown on the taxpayer's books are as follows:

Building   $1,100,000

Accumulated depreciation 980,000(a) $120,000

Land 80,000

(a) If the straight-line method of depreciation had been used, the

accumulated depreciation would be $920,000.

Answer 1

Answer:

a.
The building is a section 1250 property
Note that 15% of the $1,180,000 selling pricee is allocated to the land
The selling price of the building is $1,003,000
The adjusted basis is $120,000
Gain realized is determined by subtracting the adjusted basis from the amount realized
Compute gain realized
Gain realized = Amount realized - Adjusted basis
=$1,003,000-$120,000
=$883,000

b.
The accumulated dpreciation under the straight line method of deprciation is $920,000
The actual accumulated depreciation is $980,000

Section 1250 ordinary income is computed by subtracting from the actual accumulated depreciation thee accumulated dpreciation under straight line method of depreciation

Compute the section 1250 ordinary income.

Section 1250 ordinary income
= Actual depreciation - Depreciation
=$980,000- $920,000
=$60,000