A taxpayer, in the 25% bracket before considering the sale, sold for a gain of $

Question

A taxpayer, in the 25% bracket before considering the sale, sold for a gain of $10,000 a residential rental building, purchased and put into service in March 2010. (The sale of land is not included in this question.) No other residential real property was sold in this tax year. The depreciation taken or allowed is $15,635. What is the amount and nature of the gain or loss? $10,000 gain taxed at a maximum of 15%. $10,000 gain taxed at a maximum of 25% (or 33% if the gain pushes the taxpayer into a higher tax bracket). $10,000 gain taxed at a maximum of 25%. $15,635 gain taxed at a maximum of 25%.

Explanation / Answer

Solution-

$10000 gain taxed at a maximum of 25%

Explanation-

In this case we apply the depreciation recapture rule. In this problem the depreciation taken was $15,635, up to this limit the gain will be treated as the ordinary income and taxation will apply at 25% rate. So, gain is $10,000 so this gain within the depreciation amount.

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