Question

Jared purchases an apartment building on January 1, 2007, for 500,000. The building is depreciated using Modified Accelerated Cost-Recovery System (MACRS) straight-line depreciation. The apartment building is sold on December 31, 2019, for620,000, when its adjusted tax basis is 320,000 (assume that180,000 of depreciation has been claimed). How much gain from the sale of the building is subject to the 25% rate?

1) $0
2) $180,000
4) $300,000
5) $320,000"

Answer 1

Jared's gain from the sale subject to the 25% rate is the amount of depreciation recapture, which is $180,000. This is the portion of the total gain equal to the depreciation he claimed on the property.

Step-by-step explanation:

Jared purchased an apartment building for $500,000 and used Modified Accelerated Cost-Recovery System (MACRS) straight-line depreciation. Over the years, he claimed $180,000 in depreciation, leaving an adjusted basis of $320,000. When he sold the building for $620,000, the gain from the sale can be calculated by subtracting the adjusted basis from the sale price, which is $620,000 - $320,000 = $300,000. However, the gain that is subject to the 25% rate is the depreciation recapture, which is the amount of depreciation claimed on the property, amounting to $180,000.