Question

A taxpayer, in the 25% bracket before considering the sale, sold for a gain of $10,000 a residential rental building, purchased and put into service in march 2010. (the sale of land is not included in this question.) no other residential real property was sold in this tax year. the depreciation taken or allowed is $15,635. what is the amount and nature of the gain or loss?

Answer 1

Answer and Explanation:

The Residential properties are depreciated over 27.5 years

Then:

The total amount of depreciation is $15,635. We assume that the property is sold in 2015.

Therefore, depreciation will be allowed only for 5 years such that the annual depreciation will be $3127 for 5 years.

He saves $781.75 annually (0.25*$3127).

If he holds the property for 5 years and then sells it, his 5 years' worth of depreciation will have saved him $3908.75  and it a $10,000 gain taxed at a maximum of 15%

$10,000 gain taxed at a maximum of 25% (or 33% if the gain pushes the taxpayer into a higher tax bracket).

$10,000 gain taxed at a maximum of 25%