Question

Firm F purchased a commercial office building for business use in 2008 for $965,000. This year, the firm sold the building for $1 million. Accumulated MACRS depreciation through date of sale was $275,000. Which of the following statements is true?

Group of answer choices

If Firm F is a corporation, it recognizes $55,000 ordinary income and $255,000 Section 1231 gain.

If Firm F is a corporation, it recognizes $62,000 ordinary income and $248,000 Section 1231 gain.

If Firm F is a noncorporate taxpayer, it recognizes $310,000 Section 1231 gain.

Both if Firm F is a corporation, it recognizes $55,000 ordinary income and $255,000 Section 1231 gain and if Firm F is a noncorporate taxpayer, it recognizes $310,000 Section 1231 gain are true.

Answer 1

Answer : Correct option is Both if Firm F is a corporation, it recognizes $55,000 ordinary income and $255,000 Section 1231 gain and if Firm F is a noncorporate taxpayer, it recognizes $310,000 Section 1231 gain are true.

Reason :

In case a firm is a Corporation 20% of the gain i.e 55000 (275000 * 20%) as ordinary Income and the balance 255000 {[1000000 - ( 965000 - 275000)] - 55000} is recognized 1231 gain is recorded Section 1231

But this rule 20% rule is not applicable noncorporate taxpayer , it recognizes  310000 {[1000000 - (965000 - 275000)} under Section 1231 gain is true.