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. $\begin{array}{|l|c|c|} \hline& \text { Building No. } 1 & \text { Building No. 2 } \\\hline \text { Date acquired } & 1986 & 1986 \\\hline \text { Cost } & \$ 800,000 & \$ 900,000 \\\hline\text { Accum. Depreciation }&800,000\\\text { -Straight-line }\\\hline\text {-ACRS depreciation } & & 900,000 \\\hline \text { Selling Price } & 80,000 & 400,000 \\\hline\end{array}$ How much gain from these sales should be reported as Sec.1231 gain and ordinary income due to depreciation recapture by the owner of the business?

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