 Hello and welcome to this session in which we will discuss section 291. Section 291 is basically a subsection or is related to the depreciation recapture when it comes to 1245 depreciation recapture and 1250. Now if you don't know the rules for 1245 depreciation recapture which is for personal asset or 1250 for real asset because we did learn about those when we learn about individual individual taxes you want to go back and view those because this lesson assumes you are familiar with the recapture rules under section 1245 and the recapture depreciation rules under section 1250 and they apply both to corporation and individual. However when it comes to corporation they will have to recapture more depreciation on section 1250 property which is what's 1250 property again real property. So we have this section 291 where the corporation will have additional ordinary income equal to 20 percent. How much is that additional ordinary income? Well that's going to be 20 percent of the access of depreciation recapture that would arise if the property was section 1245. Now if you don't know how to do depreciation recapture under section 1245 please go back and view this over an access of depreciation recapture computed under section 1250 without regard to 291. So simply put you would compute depreciation recapture if the property was 1245 and look at depreciation recapture for 1250 the access of that whatever extra extra access between those two you multiply it by 20 percent. Now the best way to illustrate this is to do what? Look at an example. Before we proceed any further I have a public announcement about my company farhatlectures.com. Farhat accounting lectures is a supplemental educational tool that's going to help you with your CPA exam preparation as well as your accounting courses. My CPA material is aligned with your CPA review course such as Becker, Roger, Wiley, Gleam, Miles. My accounting courses are aligned with your accounting courses broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true-false questions as well as exercises. Go ahead start your free trial today. Let's take a look at this example. Adam Company purchased an office building April 1st for 810,000 that's the cost. Property was sold October 16th 1150 this is the consideration received. So let's compute how much gain do we recognize. Well it's going to be the selling price which is 1 million 150 consideration received minus the adjusted basis. What are the adjusted basis? We have the cost of 810,000 minus cost recovery or minus the depreciation and we are using straight line method. Why? Well it was purchased 2008. Well after 1986 what do we use for these properties? Real property straight line. So therefore the recognized gain is selling price minus the adjusted basis. Remember the adjusted basis we know it in financial accounting as book value which is the cost minus accumulated depreciation equal to the book value and taxes. We say cost minus cost recovery will give us the adjusted basis. Now we have to look at the potential 1245 recapture. How do we compute 1245 recapture? Well that's the second step. Basically this is the first step figure out what's the recognized gain. The second step is we want 1245 potential depreciation recapture. Well it's the lesser of recognized gain which is 653.921 that's why we have to compute this first and depreciation taking is 313.921 using the straight line method. Well so what's the potential 1245? It's 313.921. It's the lesser of these two figures. Now let's take a look at section 1250 recapture. Well let's take a look at this. This is step three and hopefully you know there is none but let's take a look and see how it works. Well we're going to look at the cost recovery taking. The cost recovery taking we know it's straight line. We are told it's straight line. Less the straight line method for 1250 this is the formula. Well the straight line method is the same as the cost recovery again because this is a property that was placed in service post 1986. A commercial property we use the straight line. Therefore what's 1245? Zero, zero. Now we can compute section 1251291 based on the formula that we went over on the power point earlier. Well which is section 1245 recapture and access of section 1250. 1250 is zero. Section 1245 recapture at 313.921 we're going to take this access multiplied by 20% and that's going to give us the ordinary income we have to recapture from the gain. So as the gain is 653.921 the ordinary income is 62,000. The remaining is 591.137. What should you do now? Go to Farhat Lectures and look at additional resources whether you are a CPA candidate, an accounting student, an enrolled agent. Lectures multiple choice through faults that's going to help you understand these concepts better. Good luck, study hard and of course stay safe.