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Aqua Corporation purchases nonresidential real property on May 8, 2017 for $1,650,000
Aqua Corporation purchases nonresidential real property on May 8, 2017 for $1,650,000. Straight line cost recovery is taken in the amount of $165,000 before the property is sold on November 27, 2020, for $2.475,000 3. Compute the amount of Aqua's recognized gain on the sale of the realty b. Determine the amount of the recognized gain that is treated as $ 1231 gain and the amount that is treated as 1250 recapture (ordinary Income due to s 291) $1231 gali $1250 recapture ordinary income due to 5 291)
Expert Solution
a.
| Basis | $1,650,000 |
| Less: Cost recovery | ($165,000) |
| Adjusted basis | $1,485,000 |
Computation of gain on sale
| sale value | $2,475,000 |
| Less: Adjusted basis | ($1,485,000) |
| Gain on the sale | $990,000 |
Therefore, the amount of gain recognized on the sale of realty is $990,000
b.
In case of Real property corporate are subject to section 291 recapture, according to section 291 corporate taxpayer to recapture 20% of the lessor of gain recognized.
The recapture gain is treated as Ordinary gain, The remaining gain is taxed as section 1231 gain
>calculation of section 1231 gain
| Gain recognized on sale | $990,000 |
| Less: recapture i.e 20% of cost recovery (20% x $165,000) | ($33,000) |
| Gain of section 1231 | $957,000 |
>calculation of Section 1250 recapture due to section 291 gain
20% of cost recovery = 20% x $165,000 = $33,000
Therefore Gain on Section 1250 recapture due to section 291 is $33,000
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