Alex purchases a building in 1986 at a cost of $500,000. ACRS depreciation on the building totals $320,000, whereas straight-line depreciation would be $260,000 for the same period. Alex sells the building for $620,000.
a. What is Alex's gain on the sale if he deducts the ACRS depreciation on the building?
b. If the building is an apartment building that Alex rents to individuals, what is the character of the gain? Assume that Alex holds the building as an investment.
c. How would your answer to part b change if the building were sold for $105,000?
d. What is Alex's gain on the sale if he deducts the straight-line depreciation on the building?
e. If Alex deducts straight-line depreciation on the building, what is the character of the gain? Assume that Alex holds the building as an investment.