Eric Purchased a Building in 2007 That He Uses in His

question 942

Multiple Choice

Eric purchased a building in 2007 that he uses in his business. Eric uses the straight- line method for the building. Eric's original cost for the building is $420,000 and cost- recovery deductions are $120,000. Eric is in the top tax bracket and has never sold any other business assets. If the building is sold for $560,000, the tax results are

• A) $120,000 Sec. 1245 ordinary income, $140,000 Sec. 1231 gain taxable at 20%.
• B) $260,000 unrecaptured Sec. 1250 gain, all taxable at 25%.
• C) $260,000 Sec. 1231 gain, of which $120,000 is unrecaptured Sec. 1250 gain taxable at 25% and the $140,000 balance is taxable at 20%.
• D) $260,000 Sec. 1231 gain, all taxable at 20%.

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