Question

A corporation has additional ordinary income equivalent to __% of the excess depreciation recapture if the property was 1245 property over depreciation recapture computed under 1250 (excluding 291).

a) 100%
b) 50%
c) 25%
d) 75%

Answer 1

The correct answer is that a corporation has additional ordinary income equivalent to (option a) 100% of the excess depreciation recapture if the property was 1245 property, which is the full amount of depreciation taken on the asset.

Step-by-step explanation:

The question deals with depreciation recapture on property under different sections of the Internal Revenue Code (IRC), specifically sections 1245 and 1250. Under section 1245, a corporation must recapture the amount of depreciation claimed on property as ordinary income up to the amount of gain realized on the sale of the property. If the property sold is 1245 property, the depreciation recapture that is treated as ordinary income is 100%. In contrast, section 1250 property pertains to depreciable real property, and if there's any additional gain upon sale, it would be categorized as a Section 1231 gain, potentially eligible for capital gains treatment, except for any unrecaptured section 1250 gain which must be recaptured at a 25% rate, but this excludes additional recapture due to section 291, which pertains only to corporations and adds an additional layer of depreciation recapture. Therefore, the answer to the question is a) 100%.