Luke sold a building and the land on which the building sits to his wholly owned
ID: 2568863 • Letter: L
Question
Luke sold a building and the land on which the building sits to his wholly owned corporation, Studemont Corp. at fair market value. The fair market value of the building was determined to be $472,500; Luke built the building several years ago at a cost of $437,500. Luke had claimed $91,500 of depreciation expense on the building. The fair market value of the land was determined to be $221,000 at the time of the sale; Luke purchased the land many years ago for $177,000.
a. What is the amount and character of Luke’s recognized gain or loss on the building?
b. What is the amount and character of Luke’s recognized gain or loss on the land?
Explanation / Answer
A
fair market value of the building was determined to be
$472,500
B
Luke built the building several years ago at a cost
$437,500
C
Luke had claimed $91,500 of depreciation expense
$91,500
D = B-C
Adjusted basis (Purchase cost - Depreciation)
$346,000
E =A-D
Ordinary gain/(loss) recognized
$126,500
a. What is the amount and character of Luke’s recognized gain or loss on the building?
Ans
Ordinary gain/(loss) recognized
$126,500
b. What is the amount and character of Luke’s recognized gain or loss on the land?
fair market value of the land
$221,000
Purchase price
$177,000
Gain
$44,000
b. What is the amount and character of Luke’s recognized gain or loss on the land?
Ans
Gain
$44,000
A
fair market value of the building was determined to be
$472,500
B
Luke built the building several years ago at a cost
$437,500
C
Luke had claimed $91,500 of depreciation expense
$91,500
D = B-C
Adjusted basis (Purchase cost - Depreciation)
$346,000
E =A-D
Ordinary gain/(loss) recognized
$126,500
a. What is the amount and character of Luke’s recognized gain or loss on the building?
Ans
Ordinary gain/(loss) recognized
$126,500
b. What is the amount and character of Luke’s recognized gain or loss on the land?
fair market value of the land
$221,000
Purchase price
$177,000
Gain
$44,000
b. What is the amount and character of Luke’s recognized gain or loss on the land?
Ans
Gain
$44,000
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