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Exercise 2-27 (Algorithmic) (LO. 2) Aqua Corporation purchases nonresidential re

ID: 2545410 • Letter: E

Question

Exercise 2-27 (Algorithmic) (LO. 2)

Aqua Corporation purchases nonresidential real property on May 9, 2014, for $2,880,000. Straight-line cost recovery is taken in the amount of $288,000 before the property is sold on November 30, 2017, for $4,320,000.

a. Compute the amount of Aqua’s recognized gain on the sale of the realty.
$

Feedback

Section 1250 property consists of real property that is not Section 1245 property, generally buildings and their structural components. When Section 1250 property is sold there is a possibility of Section 1250 depreciation recapture.

b. Determine the amount of the recognized gain that is treated as § 1231 gain and the amount that is treated as § 1250 recapture due to § 291.
§ 1231 gain: $


§ 1250 recapture due to § 291: $

Explanation / Answer

A)Straight line cost recovery is taken at $288,000. Hence the value as on date of sale is to be $2,880,000-$288,000=$2,592,000

Sold at an amount of $4,320,000

Hence, Gain on sale to be recognized at $4,320,000-$2,592,000=$1,728,000