[scottge]

I’m reading the CPA book.

What is ‘the additional amount that would have been ordinary income if the property had instead been S3c. 1245 property or Sec 1245 recover property’? What does this mean? In the example, why does this amount equal to 280,000?

[atabiaka]

Hi scottge,
I assume you are using Wiley plus book. You need to take a look at the example shown on the previous page under 1250 recapture.
Under this rule, when a gain arose from the sale of the asset there must be a recapture amount. For assets under Sec. 1250 you need to recapture the difference between double declining method used and straight line depreciation. Thus, $360K – $330K = $30K is the difference.

$310K total gain
-$30K difference
=280K Gain if straight line depreciation was taken

Now $30K taxed at ordinary tax rate and $280 at 1231 gain.

However, if it is a C Corp then section 297 kicks in, where an additional amount is recaptured. In this case you recapture an additional 20% of the gain that would arise if straight line depreciation was taken. Which in this example is $280 as calculated above.As the result, you will have $30K+$56=86 at ordinary rate and the rest; $224, at 1231 gain.

Hope this helps.

[Author]

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