Tito purchased a building in 2014 that he uses il
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![11. Tito purchased a building in 2014 that he uses in his business. Tito uses the
straight-line method for the building. Tito's original cost for the building is $650,000 and
cost-recovery deductions are $125,000. Eric is in the top tax bracket and has never sold
any other business assets. If the building is sold for $750,000, the tax results are
A) $225,000 Sec. 1231 gain, all taxable at 20%.
B) $225,000 unrecaptured Sec. 1250 gain, all taxable at 25%.
C) $100,000 Sec. 1245 ordinary income, $125,000 Sec. 1231 gain taxable at 20%.
D) $225,000 Sec. 1231 gain, of which $100,000 is unrecaptured Sec. 1250 gain taxable
at 25% and the $125,000 balance is taxable at 20%.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb896c165-d0a7-4e75-bc28-2507707f26c1%2F776d6819-237e-4a80-b00f-7ea0a3453f35%2F8mwspr8_processed.jpeg&w=3840&q=75)
Transcribed Image Text:11. Tito purchased a building in 2014 that he uses in his business. Tito uses the
straight-line method for the building. Tito's original cost for the building is $650,000 and
cost-recovery deductions are $125,000. Eric is in the top tax bracket and has never sold
any other business assets. If the building is sold for $750,000, the tax results are
A) $225,000 Sec. 1231 gain, all taxable at 20%.
B) $225,000 unrecaptured Sec. 1250 gain, all taxable at 25%.
C) $100,000 Sec. 1245 ordinary income, $125,000 Sec. 1231 gain taxable at 20%.
D) $225,000 Sec. 1231 gain, of which $100,000 is unrecaptured Sec. 1250 gain taxable
at 25% and the $125,000 balance is taxable at 20%.
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