Question

LO 8.8 16. Jeanie acquires an apartment building in 2007 for $250,000 and sells it for $500,000 in 2018. At the time of sale there is $75,400 of accumulated straight-line depreciation on the apartment building. Assuming Jeanie is in the highest tax bracket for ordinary income and the Medicare tax applies, how much of her gain is taxed at 28.8 percent? a. None b. $325,400 c. $250,000 d. $174,600 e. $75,400

Answer 1

Gain taxed at 28.8 percent?

Ans: ( E) $ 75,400

Explanation:

1) Depreciation recapture is the portion of the gain attributable to the depreciation deductions previously allowed during the period the taxpayer owned the property.

2) As per the IRS,

Uncaptured section 1250, depreciation will be taxed at higher tax rate of taxpayer.

3) In this case depreciation of $75,400 would be taxed at 28.8%