Property transactions

For non‑residential real property, MACRS assigns a 39‑year recovery period, using the straight‑line method over the asset’s class life. This long period reflects the slower depreciation of commercial buildings compared with personal property. Answer D is correct; the 7‑year (A) and 15‑year (B) periods apply to equipment and residential rental property, while 27.5 years (C) is for residential real estate.

The Internal Revenue Code allows a single taxpayer to exclude up to $250,000 of gain on the sale of a principal residence, provided ownership and use tests are met, because Congress intended to relieve homeowners of modest capital gains. The $125,000 figure applies only to married filing jointly spouses, so choosing that amount for a single filer is incorrect.

Capital assets held for more than one year qualify for long-term capital gains treatment, which generally offers preferential tax rates of 0%, 15%, or 20%. A diagram for this topic isn't available yet — the worked example below walks the same reasoning step by step.

• !Option A is incorrect because assets held for one year or less are classified as short-term and taxed at ordinary income rates, not long-term.
• !Option C is incorrect because personal property, such as machinery or vehicles, no longer qualifies for like-kind exchange treatment.
• !The $125,000 figure applies only to married filing jointly spouses, so choosing that amount for a single filer is incorrect.

Answer each from memory — you'll see instantly whether you're right and why.

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