Mr. Briggs purchased an apartment building on January 10, 2008 for $2,000,000 with 90% (10%) of the purchase price allocated to the building (land). He sold the apartment on October 22, 2010, for $2,500,000, with 90% (10%) of the sales price allocated to the building (land). This sale was his only taxable property transaction during the past ten years. (Normally, he engages in wholly non-taxable Sec. 1031 exchanges.) While Mr. Briggs owned the apartment, 100 percent of the gross rental income was "rental income from dwelling units." (You may assume that his rental of the apartment building was a profit-motivated "trade or business.") Mr. Briggs is single and had taxable income of $1,000,000 in 2010 (without including the tax consequences of the sale of the apartment).
1. What is the allowable depreciation on the building for the years Mr. Briggs owned it (2008-2010)? (You need include in your memo only the applicable IRC section(s) that provide for the deduction of depreciation expense on this type of property. You do NOT need to include more specific references, such as IRC subsections, regulation sections, IRS pronouncements.)
2. What are the tax consequences (including the increase in tax) of the October 22, 2010, sale of the building? (Note that you are NOT also required to determine the tax consequences of the sale of the land.)