Question

Bateman corporation sold an office building that it used in its business for $800,150. bateman bought the building ten years ago for $599,925 and has claimed $200,225 of depreciation expense. what is the amount and character of bateman gain or loss?

O $40,045 ordinary and $360,405 1231 gain
O $200,225 ordinary and $200,225 1231 gain
O $400,450 ordinary gain
O $400,450 capital gain
O none of the choices are correct

Answer 1

To determine the gain from the sale of the building, subtract the depreciation claimed from the purchase price to find the adjusted basis. Then, subtract the adjusted basis from the sale price to find the gain. The entire gain is classified as a Section 1231 gain, which is taxed as a long-term capital gain.

Step-by-step explanation:

To determine the amount and character of Bateman Corporation's gain or loss from the sale of the office building, you need to follow certain steps:

First, you calculate the adjusted basis of the asset by subtracting the total depreciation from the original cost of the asset:

1. Original cost of the building: $599,925
2. Less total depreciation claimed: $200,225
3. Adjusted basis: $399,700

Next, you calculate the gain by subtracting the adjusted basis from the sale price of the building:

1. Sale price: $800,150
2. Less adjusted basis: $399,700
3. Gain on sale: $400,450

In this case, the building was used in the business, which means the gain is considered a Section 1231 gain. A Section 1231 gain is taxed as a long-term capital gain if certain conditions are met. Since the building was held for more than one year, this condition is satisfied, and thus the full gain of $400,450 would be treated as a Section 1231 gain, taxed at the more favorable capital gains rates, not as ordinary income.

Based on these calculations and the information provided, the correct option from the choices is:

$400,450 capital gain