Question

On June 1, 2018, Skylark Enterprises, a calendar year LLC reporting as a sole proprietorship acquired a retail store building for $500,000 (with $100,000 being allocated to the land). The store building was 39-year real property, and the straight-line cost recovery method was used. The property was sold on June 21, 2022, for $385,000. Click here to access EXHIBIT 8.8 MACRS Straight-Line Depreciation for Real Property. Carry all cost recovery rates out to five decimal places. Round the total cost recovery deduction to the nearest dollar. a. Compute the cost recovery and adjusted basis for the building. Total cost recovery is $fill in the blank 6b2d35ffd019fba_1, and the adjusted basis for the building is $fill in the blank 6b2d35ffd019fba_2. b. What are the amount and nature of Skylark's gain or loss from disposition of the property? What amount, if any, of the gain is unrecaptured § 1250 gain? There is $fill in the blank 263859032f83fcb_1 of recognized gainloss on the sale of the property, of which all 50% none is subject to § 1250 recapture.

Answer 1

To compute the cost recovery and adjusted basis for the building, you need to determine the depreciable basis and calculate the annual depreciation expense. The adjusted basis for the building is the original cost minus the accumulated depreciation. The amount and nature of the gain or loss from disposition of the property can be calculated by subtracting the adjusted basis from the selling price. None of the gain in this case is subject to § 1250 recapture.

Step-by-step explanation:

Calculating Depreciation and Adjusted Basis

To calculate the cost recovery for the building, we need to determine the depreciable basis of the building, which is the cost of the building minus the allocated amount for the land. In this case, the depreciable basis would be $500,000 - $100,000 = $400,000. Using the straight-line method, we divide the depreciable basis by the recovery period of 39 years to find the annual depreciation expense: $400,000 ÷ 39 = $10,256.41. Since the building was acquired on June 1, 2018, we need to calculate the cost recovery for the year 2018 using the Mid-Quarter convention. From Exhibit 8.8, we find that the Q2 rate for 39-year real property is 3.485%. So, the cost recovery for 2018 would be: $10,256.41 × 3.485% = $357.12.

The adjusted basis for the building is the original cost minus the accumulated depreciation. Since the building was sold on June 21, 2022, we need to calculate the accumulated depreciation for 2019, 2020, 2021, and for the portion of 2022 before the sale date. Using the straight-line method and the Q2 rates from Exhibit 8.8, we can calculate the accumulated depreciation for each year as follows: 2019: $10,256.41 × 3.636% = $372.98, 2020: $10,256.41 × 3.636% = $372.98, 2021: $10,256.41 × 3.485% = $357.12, and 2022: $10,256.41 × 1.742% × 173/365 = $113.34. Adding these amounts, the accumulated depreciation at the time of sale is $372.98 + $372.98 + $357.12 + $113.34 = $1,216.42. Therefore, the adjusted basis for the building is $500,000 - $1,216.42 = $498,783.58.

Calculating Gain or Loss

The amount of gain or loss from the disposition of the property is calculated by subtracting the adjusted basis from the selling price. In this case, the selling price is $385,000 - $498,783.58 = -$113,783.58. Since the adjusted basis exceeds the selling price, there is a loss on the sale of the property. However, since the property is real property subject to depreciation recapture under § 1250, we need to determine the amount of unrecaptured § 1250 gain. The unrecaptured § 1250 gain is the portion of the gain that is taxed at a maximum rate of 25%. In this case, the recognized loss is -$113,783.58, which means that none of the gain is subject to § 1250 recapture.

Answer 2

To compute the cost recovery and adjusted basis for the building, we need to use the Modified Accelerated Cost Recovery System (MACRS) straight-line depreciation method. The amount and nature of Skylark's gain or loss from the disposition of the property can be calculated by subtracting the adjusted basis from the sale price. We cannot fill in the blanks without the specific calculations and data.

Step-by-step explanation:

To compute the cost recovery and adjusted basis for the building, we need to use the Modified Accelerated Cost Recovery System (MACRS) straight-line depreciation method. According to the information given, the property was purchased on June 1, 2018, for $500,000, with $100,000 allocated to the land. The building has a 39-year recovery period. The total cost recovery deduction is the accumulated depreciation on the building until the date of sale, June 21, 2022, using the straight-line method. The adjusted basis for the building is the original cost minus the total cost recovery deduction.

To determine the cost recovery deduction, we can refer to Exhibit 8.8 MACRS Straight-Line Depreciation for Real Property. According to the exhibit, the annual depreciation rate for a 39-year real property using the straight-line method is 2.5641%. We can calculate the accumulated depreciation by multiplying the annual depreciation rate by the adjusted basis for each year.

For example, in the first year, the adjusted basis is $400,000 ($500,000 - $100,000) and the accumulated depreciation is $10,256 ($400,000 * 2.5641%). Using the same calculation for each year, we can determine the total cost recovery deduction over four years. Finally, subtracting the total cost recovery deduction from the original cost of $500,000 will give us the adjusted basis for the building.

The amount and nature of Skylark's gain or loss from the disposition of the property can be calculated by subtracting the adjusted basis from the sale price. In this case, the sale price is $385,000. If the adjusted basis is higher than the sale price, there will be a loss. If the adjusted basis is lower than the sale price, there will be a gain. To determine the unrecaptured § 1250 gain, we need to calculate the difference between the gain and the ordinary income recapture amount.

Based on the information provided, we cannot fill in the blanks without the specific calculations and data. To calculate the cost recovery and adjusted basis for the building, you would need the exact dates of purchase and sale, as well as the annual depreciation rates corresponding to each year. Similarly, to determine the amount and nature of Skylark's gain or loss, you would need the adjusted basis and sale price figures. Please provide the missing data or clarify the question further.