Sec 1250:

Given

sale price, building = $ 200

purchase price, building = 150

MACRS = 50

Straight line would be = 40

Explanation:

Imagine a jar with 200 pounds of sugar.

First, you take out 100 pounds (which is your AB = Purchase price - MACRS)

Second, you take out 50 pounds (which is your MACRS; 10 pounds of it your recaptured 1250 = MACRS - S/L, and 40 - MACRS remainder, it's called unrecaptured 1250 gain)

You have 50 pounds left in the jar, this is your 1231 gain.

Why they made it so complicated?

Returning to money mesurement:

First $100 - return of capital, not taxed

1250 recaptue = $10 - I belive, OI

unrecaptured 1250 = $40 - taxed at 25%

remained, $50, 1231 gain - taxed as capital gain

Thanks so much Chaperone and Lucky!

I definintley understand it now. Thx so much for the examples.

Chaperone, good luck tomorrow on the test!!

I think I'm seriously missing something in understanding this problem.

I need help in figuring out exactly how 1.) MACRS depreciation was calculated and 2.) how Straight Line depreciation was even calculated?

The facts given in the original problem stated that depreciation = 25?  Therefor, I do not understand how depreciation as demonstrated below is something completely different.

Can anyone help me out with more explanation?
I'd really appreciate it!

chaperon rouge wrote: Sec 1250: Given sale price, building = $ 200 purchase price, building = 150 MACRS = 50 Straight line would be = 40 Explanation: Imagine a jar with 200 pounds of sugar. First, you take out 100 pounds (which is your AB = Purchase price - MACRS) Second, you take out 50 pounds (which is your MACRS; 10 pounds of it your recaptured 1250 = MACRS - S/L, and 40 - MACRS remainder, it's called unrecaptured 1250 gain) You have 50 pounds left in the jar, this is your 1231 gain.   Why they made it so complicated? Returning to money mesurement: First $100 - return of capital, not taxed 1250 recaptue = $10 - I belive, OI unrecaptured 1250 = $40 - taxed at 25% remained, $50, 1231 gain - taxed as capital gain