Firm P, a noncorporate taxpayer, purchased residential realty in 1985 for $1 million. This year it sold the realty for $450,000. Through date of sale, Firm P deducted $814,000 accelerated depreciation on the realty. Straight-line depreciation would have been $625,000. a. Determine the amount and character of Firm P's recognized gain on sale. b. How would your answer change if Firm P was a corporation?

Amount realized on sales $450,000

Cost $1,000,000

Accumulated depreciation $814,000

$186,000

Realized gain $264,000

Ordinary income = excess of $814,000 accelerated

Over $625,000 straight-line depreciation $189,000

Section 1231 gain $75,000

Recognized gain $264,000

(b)

Ordinary income = excess of $814,000 accelerated

Over $625,000 straight-line depreciation $189,000

20% additional recapture 20% * $75,000 $15,000

Section 1231 gain $60,000

Recognized gain $264,000