Alejandro Purchased a Building in 1985,which He Uses in His

question 11

Multiple Choice

Alejandro purchased a building in 1985,which he uses in his manufacturing business.Alejandro uses the ACRS statutory rates to determine the cost-recovery deduction for the building.Alejandro's original cost for the building is $500,000 and cost-recovery deductions allowed are $500,000.If the building is sold for $800,000,the tax results to Alejandro are

• A)$500,000 Sec.1245 ordinary income and $300,000 Sec.1231 gain.
• B)$800,000 Sec.1245 ordinary income.
• C)$500,000 Sec.1245 ordinary income and $300,000 Sec.1250 income.
• D)$800,000 Sec.1231 gain.

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Definitions:

Intercompany Sale

Transactions that occur between two divisions or subsidiaries within the same parent company, often for the purpose of transferring goods or services.

Pre-tax Gain

Income generated before any taxes have been applied.

Investment Account

An account held at a financial institution that is used for holding and trading investments such as stocks, bonds, and mutual funds.

Equity Method

An accounting technique used to record investments in other companies, where the investment's value is adjusted based on changes in the investee's equity.