Ricardo acquired a warehouse for business purposes on August 30, 1996. The build

Question

Ricardo acquired a warehouse for business purposes on August 30, 1996. The building cost $512,500. He took $292,100 of depreciation on the building, and then sold it for $630,000 on July 1, 2015. What are the amount and nature of Ricardo’s gain or loss on the sale of the warehouse? a. What is the adjusted basis for the warehouse? b. What amount of the gain or loss is realized on the sale of the warehouse? c. What amount of the gain or loss is unrecaptured? d. At what rate is the unrecaptured gain or loss taxed? e. What amount of the gain or loss qualifies as a §1231 gain or loss?

Explanation / Answer

Answer a. Adjusted Basis of Warehouse = Warehouse Cost - Depreciation Adjusted Basis of Warehouse = 512500 - 292100 = $220,400 Answer b. Gain / (loss) Realized on Sale of warehouse = Sales Price - Adjusted Basis Gain / (loss) Realized on Sale of warehouse = 630000 - 220400 = $409,600 Answer c. Amt. of gain is unrecaptured = 292100 X 25% = $73025 Answer d. Rate of unrecaptured gain or loss taxed = 25% Answer e. Amount of Gain qualifies as a § 1231 gain or loss = Realized Gain - Depreciation Amount of Gain qualifies as a § 1231 gain or loss = 409600 - 292100 = $117,500

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