[Shart Happens]

Can someone please explain the below question or confirm if there is an error? Per the Wiley text (pg 430) it says depreciation recapture for 1245,1250, and 291 must be included in income in the year of the sale. This recapture then gets added to the adj basis and is used in the calc of GP. The solution for the below problem makes no reference to any recapture, however, it seems like there is sec 291 recapture in play.

ITAX-0149

Aviary corp sold a building for $600,000. Aviary received a down payment of $120,000 as well as annual principal payments of $120,000 for each of the subsequent four years. Aviary purchased the building for $500,000 and claimed depreciation of $80,000. What amount of gain should Aviary report in the year of sale using the installment method?

Wiley Answer: 36,000

But it seems like the answer should be 48,800 if you factor in sec 291.

[CPA journey]

yes it should be 48,800 and we should consider section 291 and this property is section 1250

CPA EXAM - DONE - JULY 2014
ETHICS PENDING - WORK EXPERIENCE- PENDING

[CPA journey]

I actually got help with this question, so the recapture rule only applies if the property held in the business less than 12 months or depreication claim exceeded using the straight line. This question does not state any of the above statement so the answer is 36000

CPA EXAM - DONE - JULY 2014
ETHICS PENDING - WORK EXPERIENCE- PENDING

[Shart Happens]

Ahhh so if there is no 1250 recapture then there is no 291 recapture… Thanks for the help!

I didn't think it was possible, but I think I hate REG more than FAR.

[Author]

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