Assume a Building Is Subject to § 1250 Depreciation Recapture

question 99

Multiple Choice

Assume a building is subject to § 1250 depreciation recapture because § 168(k) was used to depreciate it.The building is destroyed in a hurricane and this is the taxpayer's only casualty or theft for the year.In which of the following situations could there be a § 1250 depreciation recapture gain?

• A)There is a loss because the insurance recovery is less than the adjusted basis.
• B)There is a gain because the insurance recovery exceeds the adjusted basis.
• C)Because of the length of time the building has been held,there is no remaining additional depreciation.
• D)There is no insurance recovery and the adjusted basis of the building is greater than zero.
• E)None of the above.

---

Definitions:

Direct Labor

The wages or salaries paid to employees who are directly involved in the production of goods or services.

Conversion Costs

The combined costs of direct labor and manufacturing overheads, representing the expenses to convert raw materials into finished goods.

Factory Overhead Costs

Expenses related to the operation of a factory that are not directly linked to a specific product, such as maintenance, utilities, and salaries of supervisory staff.

Direct Material

The raw materials that are used directly in manufacturing a product and can be easily traced to the final product.