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Ben purchased an apartment building about 10 years ago, for $200,000. The building has been depreciated over the appropriate recovery period using the straight-line method. In the current year, the building was sold for $220,000, when the accumulated depreciation was $62,500. Ben is in the highest tax bracket; on his current year tax return, he should report:

a.Section 1231 gain of $20,000 and ordinary income of $62,500

b.Section 1231 gain of $62,500 and ordinary income of $20,000

c.Ordinary income of $82,500

d.Section 1231 gain of $20,000 and "unrecaptured depreciation" taxed at 25 percent of $62,500

e.None of these choices are correct.

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Calculator

An asset's adjusted basis is computed as:

a.Original basis + capital improvements + gain or loss realized.

b.Original basis - capital improvements + accumulated depreciation.

c.Original basis + capital improvements - accumulated depreciation.

d.Original basis + capital improvements + accumulated depreciation.

e.None of these choices are correct.

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Section 197 intangibles:

a.Include goodwill, going-concern value, and information bases.

b.Are not amortized over the actual estimated useful life of the intangible asset.

c.Are amortized over a 15-year period.

d.Were defined in the Revenue Reconciliation Act of 1993.

e.All of these choices are true.