Martha McDonald purchased an office building in 1995 for $630,000. In 2015, she

Question

Martha McDonald purchased an office building in 1995 for $630,000. In 2015, she sells the building for $950,000. Over the years, she had replaced the windows and doors at a cost of $60,000, repainted the exterior at a cost of $ 15,000, and installed an elevator at a cost of $90,000. Martha had taken straight line depreciation on the building for 20 years, for a total of $400,000. What is Marthas basis in the building at the time of the sale? What is her realized gain? What is her recognized gain?

Explanation / Answer

A ) Adjusted basis in the building at the time of sale =

$ 6,30,000 + $1,65,000 = $ 7,95, 000 - $ 4,00,000 = $ 3,95,000

Adjusted Basis is $ 3,95,000.00

B) Recognized Gain=$ 9,50,000- $ 4,00,000 = $3,20,000.00

C) Realized Gain

9,50,000 – 3,95,000

= $ 5, 55,000.00

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