Question

Beige Corporation, a C corporation, purchases a warehouse on August 1, 2007, for $1 million. Straight-line depreciation is taken in the amount of $411,750 before the property is sold on June 11, of the current year, for $1.2 million. What is the amount and character of the gain recognized by Beige on the sale of the realty?

Answer 1

The gain recognized by Beige Corporation from the sale of their warehouse is $611,750, which would generally be considered a capital gain for tax purposes since the property was a capital asset held for more than one year.

Step-by-step explanation:

The question involves the sale of a warehouse by Beige Corporation and requires the determination of the gain or loss from the sale of the property. To calculate this, we first figure out the adjusted basis of the real estate which is the original purchase price minus any accumulated depreciation. In this case, the adjusted basis is $1,000,000 (original purchase price) - $411,750 (accumulated depreciation) = $588,250.

Next, we calculate the amount of gain by subtracting the adjusted basis from the selling price. Beige Corporation sold the property for $1,200,000, so the gain is $1,200,000 (selling price) - $588,250 (adjusted basis) = $611,750.

The character of the gain would typically be considered a capital gain for a C corporation for tax purposes as it involves the sale of a capital asset (real estate) held more than one year.

Answer 2

Answer and Explanation:

The computation of the amount and character of the gain recorded is shown below:

1. Recognized gain would be

= Sales - the cost of the property - recovery cost

= $1,200,000 - $1,000,000 - $411,750

= $611,750

2. Now as per the section 1245 the potential recapture is $411,750

3. Now extra section 291 ordinary income in the case when it is a corporation

= $411,750 ×20%

= $82,350

4. And finally $82,350 would be considered as an ordinary income under section 291 while the remaining balance i.e.

= $611,750 - $82,350

= $529,400

This amount would be considered as a gain under section 1231