Question

Lester sold a warehouse with an original cost of $150,000 for $230,000. The warehouse had accumulated depreciation of $40,000. The recognized gain on the sale was $ . The amount of the gain that is unrecaptured Section 1250 gain is $ and will be taxed at a maximum rate of percent. The remaining $ will be taxed at a maximum rate of 20%.

Answer 1

Recognized Gain:

= Selling price - Net book value

= 230,000 - (150,000 - 40,000)

= $120,000

The amount of the gain that is unrecaptured Section 1250 gain:

= Selling Price - Cost of asset - Accumulated depreciation

= 230,000 - 150,000 - 40,000

= $40,000

Tax will be maximum rate of 25% as per IRS rules.

The cash to be charged at maximum of 20% is:

= Gain - Section 1250 gain

= 120,000 - 40,000

= $80,000