Question

An individual taxpayer has $224,100 of section 1231 gain from the disposition of nonresidential real estate. Straight-line depreciation of $380,970 was deducted on the real estate. The taxpayer also has a section 1231 loss of $504,225 from the sale of equipment.

How much of the section 1231 gain is taxed as unrecaptured section 1231 gain?

$________ of the gain is taxed as unrecaptured section 1231 gain because there is a net section 1231 (gain/loss) fot the year of $_________.

Answer 1

As per section 1250 when the depreciated property is sold above its adjusted basis , then the gain generated due to depreciated value of assets will be taxed as unrecaptured gain, which is calculated by finding the difference between the original price of assets and adjusted basis of asset ,

in this Case gain of $224100 of section 1231 is earned by disposition of non residential property, where straight line dep = $380970, so the whole gain of $ 224100 will be treated as unrecaptured gain because it the gain generated due to straight line depreciation adjusted from original price of asset ,

so AS PER sec 1231 gain of $ 224100 is taxable as Unrecaptured section 1231 gain and

As per sec 1250 the unrecaptured gain is treated as capital gain and will be taxed as per sec 1231

so there is capital loss of $504,225 which can be setoff from the unrecaptured gain , so there is net loss = 504225-224100

net loss of section 1231=$280125

hence zero $ of gain is taxed as unrecaptured section 1231 gain because there is net section 1231 loss for the year $ 280125