Beige Corporation, a C corporation, purchases a warehouse on August 1, 2007, for $1 million. Straight-line depreciation is taken in the amount of $411,750 before the property is sold on June 11, of the current year, for $1.2 million. What is the amount and character of the gain recognized by Beige on the sale of the realty?

Answer and Explanation:

The computation of the amount and character of the gain recorded is shown below:

1. Recognized gain would be

= Sales - the cost of the property - recovery cost

= $1,200,000 - $1,000,000 - $411,750

= $611,750

2. Now as per the section 1245 the potential recapture is $411,750

3. Now extra section 291 ordinary income in the case when it is a corporation

= $411,750 ×20%

= $82,350

4. And finally $82,350 would be considered as an ordinary income under section 291 while the remaining balance i.e.

= $611,750 - $82,350

= $529,400

This amount would be considered as a gain under section 1231

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