) A acquires a house for $400,000 and incurs $7,500 of various closing fees. A a

Question

) A acquires a house for $400,000 and incurs $7,500 of various closing fees. A also paid $3,000 of the sellers real estate taxes which was part of the $400,000 purchase price. While A owned the house A built a swimming pool for a cost of $32,000 but deducted $15,000 as a medical expense, A deducted $9,000 of expenses as a home office deduction of which $4,500 was for depreciation. A sells his home to B on October 1, 2016. A receives $600,000 in cash and B assumes A’s mortgage of $300,000. B will pay the entire year’s real estate tax of $12,000 in addition to the $300,000 purchase price. The broker’s commission on the sale is $30,000. B is obtaining financing and to help B, A will pay points to the lender of $10,000.What is A’s basis in the house, what is the amount realized by A on the sale and what is A’s gain or loss with respect to the house?

Explanation / Answer

Part A)

The adjusted basis of A is calculated with the use of following table:

__________

Part B)

The amount realized on sale and the value of gain/loss is calculated with the use of following table:

Purchase Price of House 400,000 Add Closing Fees 7,500 Cost of Construction of Swimming Pool 32,000 Less Depreciation 4,500 A's Adjusted Basis $435,000

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