Question

Vladmir owned a duplex that he rented to tenants. he acquired the property several years ago for $296,000. he used the straight-line method of cost recovery, which totaled $75,000. vladmir, who is in the 32% marginal income tax bracket, sold the property in february of the current year for $330,000. what is the amount and nature of the gain on the sale?

Answer 1

Vladimir's sale of the duplex resulted in a gain of $109,000. This is calculated by subtracting the adjusted basis of $221,000 from the selling price of $330,000. The nature of the gain is a section 1231 gain, potentially taxed as long-term capital gain or ordinary income.

Step-by-step explanation:

Vladimir owned a duplex that he rented to tenants, acquired for $296,000 and sold for $330,000. Using the straight-line method of cost recovery, he depreciated a total of $75,000. To calculate the gain on the sale, we need to determine the adjusted basis of the property. The adjusted basis is the original cost minus accumulated depreciation, which is $296,000 - $75,000 = $221,000. The amount of the gain is then the selling price minus the adjusted basis, which is $330,000 - $221,000 = $109,000. Since this property was used for rental purposes, the gain is treated as a section 1231 gain, which can be taxed as either long-term capital gains or as ordinary income depending on various factors.