776 THE CHARACTERIZATION OF INCOME AND DEDUCTIONS rate of 15 or 20 percent. 15 PART 6...

 

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776 THE CHARACTERIZATION OF INCOME AND DEDUCTIONS rate of 15 or 20 percent. 15 PART 6 real is classified as "unrecaptured Section 1250 gain" and is generally taxed that is not taxed as ordinary income under Section 1250 or Section 123113 property is classified as "adjusted net capital gain" generally taxed at a at a 25 percent rate. 14 Any remaining gain on the depreciable Admittedly, there are a lot of complicated hoops to jump through under the above process; but, as a practical matter, when one sells depreciable real property at a gain, the gain generally16 is taxed at a 25 the property and any excess gain generally is taxed at a 15 or 20 percent percent rate to the extent of the depreciation that has been allowed on at a cost of $100,000 and the land underlying it at a cost of $50,000. Over rate. For example, assume a taxpayer purchased a depreciable building the years the taxpayer was allowed $30,000 of depreciation subsequently sells the building for $160,000 and the land for $75,000, the building reducing its adjusted basis to $70,000. If the taxpayer taxpayer would have a $90,000 gain on the building ($160,000 less Generally, after the application of Sections 1231, 1222, and 1(h), the $70,000) and a $25,000 gain on the land ($75,000 less $50,000). gains on the building and the land would be treated as long-term capital attributable to the depreciation) would be taxed at a 25 percent rate with gains and $30,000 of the $90,000 gain on the building (the amount the remaining $60,000 of gain on the building and the $25,000 gain on the land generally being taxed at a 15 or 20 percent rate. on the way of summarizing the recapture of Another simplified way of summarizing the depreciation allowed on depreciable real property as "unrecaptured Section 1250 gain" is to compare it to the recapture of depreciation allowed on personal property under Section 1245.17 In general, Section 1245 recaptures depreciation allowed on depreciable personal property as ordinary income, while Section 1(h) recaptures depreciation allowed on depreciable real property at a 25 percent rate. PROBLEMS 1. To what extent does 1250 apply to real property placed in service after 1986? 2. On January 1 of the year 2006, Owner purchased some commercial real property at a cost of $880,000, of which $780,000 was properly allocable to the building and $100,000 was properly allocable to the land. Owner is a single taxpayer who has $200,000 of ordinary taxable income from services 13 14 See notes 7 and 8, supra. I.R.C. 1(h)(6)(A). In limited circumstances, this gain may be taxed at a 10, 12, 22, or 24% rate. See I.R.C. 1(h)(1)(A) and page 689, supra. IRC & 1222(11) net capital gain CHAPTER 22 in 2022. Owner sells the property ON THE SALE OF DEPRECIABLE PROPERTY on December 31, 2022 for $1 million, with $890,000 of the purchase price properly allocated to the building and $110,000 properly allocated to the land. Disregard the mid-month convention and assume for depreciation purposes that the property was held for full years in the years 2006 and 2022. Further, assume Owner had no other (a) What results to Owner on the sale of the property in 2022? (b) What results to Owner on the sale in (a), above, if Owner also $ 1231 gains 3 or losses in 2022 and no 1231 losses in prior years. had a $20,000 long-term capital loss on the sale of stock? DEBTS AND urdles are the deducti Bugbee v. Commissioner Findings Opinion 777 776 THE CHARACTERIZATION OF INCOME AND DEDUCTIONS rate of 15 or 20 percent. 15 PART 6 real is classified as "unrecaptured Section 1250 gain" and is generally taxed that is not taxed as ordinary income under Section 1250 or Section 123113 property is classified as "adjusted net capital gain" generally taxed at a at a 25 percent rate. 14 Any remaining gain on the depreciable Admittedly, there are a lot of complicated hoops to jump through under the above process; but, as a practical matter, when one sells depreciable real property at a gain, the gain generally16 is taxed at a 25 the property and any excess gain generally is taxed at a 15 or 20 percent percent rate to the extent of the depreciation that has been allowed on at a cost of $100,000 and the land underlying it at a cost of $50,000. Over rate. For example, assume a taxpayer purchased a depreciable building the years the taxpayer was allowed $30,000 of depreciation subsequently sells the building for $160,000 and the land for $75,000, the building reducing its adjusted basis to $70,000. If the taxpayer taxpayer would have a $90,000 gain on the building ($160,000 less Generally, after the application of Sections 1231, 1222, and 1(h), the $70,000) and a $25,000 gain on the land ($75,000 less $50,000). gains on the building and the land would be treated as long-term capital attributable to the depreciation) would be taxed at a 25 percent rate with gains and $30,000 of the $90,000 gain on the building (the amount the remaining $60,000 of gain on the building and the $25,000 gain on the land generally being taxed at a 15 or 20 percent rate. on the way of summarizing the recapture of Another simplified way of summarizing the depreciation allowed on depreciable real property as "unrecaptured Section 1250 gain" is to compare it to the recapture of depreciation allowed on personal property under Section 1245.17 In general, Section 1245 recaptures depreciation allowed on depreciable personal property as ordinary income, while Section 1(h) recaptures depreciation allowed on depreciable real property at a 25 percent rate. PROBLEMS 1. To what extent does 1250 apply to real property placed in service after 1986? 2. On January 1 of the year 2006, Owner purchased some commercial real property at a cost of $880,000, of which $780,000 was properly allocable to the building and $100,000 was properly allocable to the land. Owner is a single taxpayer who has $200,000 of ordinary taxable income from services 13 14 See notes 7 and 8, supra. I.R.C. 1(h)(6)(A). In limited circumstances, this gain may be taxed at a 10, 12, 22, or 24% rate. See I.R.C. 1(h)(1)(A) and page 689, supra. IRC & 1222(11) net capital gain CHAPTER 22 in 2022. Owner sells the property ON THE SALE OF DEPRECIABLE PROPERTY on December 31, 2022 for $1 million, with $890,000 of the purchase price properly allocated to the building and $110,000 properly allocated to the land. Disregard the mid-month convention and assume for depreciation purposes that the property was held for full years in the years 2006 and 2022. Further, assume Owner had no other (a) What results to Owner on the sale of the property in 2022? (b) What results to Owner on the sale in (a), above, if Owner also $ 1231 gains 3 or losses in 2022 and no 1231 losses in prior years. had a $20,000 long-term capital loss on the sale of stock? DEBTS AND urdles are the deducti Bugbee v. Commissioner Findings Opinion 777