1- Ben purchased an apartment building about 10 years ago, for $200,000. The bui
ID: 2563146 • Letter: 1
Question
1-
Ben purchased an apartment building about 10 years ago, for $200,000. The building has been depreciated over the appropriate recovery period using the straight-line method. In the current year, the building was sold for $220,000, when the accumulated depreciation was $62,500. Ben is in the highest tax bracket; on his current year tax return, he should report:
a.Section 1231 gain of $20,000 and ordinary income of $62,500
b.Section 1231 gain of $62,500 and ordinary income of $20,000
c.Ordinary income of $82,500
d.Section 1231 gain of $20,000 and "unrecaptured depreciation" taxed at 25 percent of $62,500
e.None of these choices are correct.
2-
Calculator
An asset's adjusted basis is computed as:
a.Original basis + capital improvements + gain or loss realized.
b.Original basis - capital improvements + accumulated depreciation.
c.Original basis + capital improvements - accumulated depreciation.
d.Original basis + capital improvements + accumulated depreciation.
e.None of these choices are correct.
3-
Section 197 intangibles:
a.Include goodwill, going-concern value, and information bases.
b.Are not amortized over the actual estimated useful life of the intangible asset.
c.Are amortized over a 15-year period.
d.Were defined in the Revenue Reconciliation Act of 1993.
e.All of these choices are true.
Explanation / Answer
1. Highest tax bracket is 25%
There will be Section 1231 gain = $220000 - $200000 = $20000, and
Unrecaptured depreciation = $62500
The ans is d.
2. Adjusted Tax Basis = Original cost - Depreciation deductions + Capital expenditures
Ans is c.
Original basis + capital improvements - accumulated depreciation
3. Ans is e.
Intangibles are assets which do not possess a physical character but is resourceful to an entity.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.