An Unincorporated Business Sold Two Warehouses During the Current Year

Multiple Choice

An unincorporated business sold two warehouses during the current year. The straight-line depreciation method was used for the first building and the accelerated method (ACRS) was used for the second building. Information about those buildings is presented below. $$\begin{array} { | l | r | r | } \hline & \text { Building No. 1 } & \text { Building No. 2 } \\\hline \text { Date acquired } & { 1986 } & 1986 \\\hline \text { Cost } & \$ 800,000 & \$ 900,000 \\\hline \text { Accum. Depreciation } & & \\\text { Straight-line } & 800,000 & \\\hline \text { ACRS depreciation } & & 900,000 \\\hline \text { Selling Price } & 80,000 & 400,000 \\\hline\end{array}$$ How much gain from these sales should be reported as section 1231 gain and ordinary income due to depreciation recapture by the owner of the business?

A) $$\begin{array} { | l | l | } \hline \text { Section 1231 Gain } & \text { Ordinary Income } \\\hline\$ 480,000 & \$ 0 \\ \hline\end{array}$$
B) $\begin{array}{|l|l|}\hline \text { Section 1231 Gain } & \text { Ordinary Income } \\\hline 80,000 & \$ 400,000\\\hline \end{array}$
C) $$\begin{array} { | l | l| } \hline\text { Section 1231 Gain } & \text { Ordinary Income } \\\hline\$ \$ 0 & \$ 480,000 \\\hline\end{array}$$

D) $$\begin{array} {| l | l |} \hline\text { Section 1231 Gain } & \text { Ordinary Income } \\\hline\$ 400,000 & \$ 80,000 \\\hline\end{array}$$