Question

Sal used a building in his business that cost $200,000. In September Year 1, Sal sold the building to Benno for $100,000 cash. Benno also agreed to assume Sal's $150,000 mortgage and pay Sal's $5,000 accrued real estate taxes. The total depreciation claimed on the building (including Year 1 depreciation) was $30,000. Sal paid $10,000 selling expenses on the sale. What was Sal's realized gain or loss on the sale of the building?

Answer 1

Sal's realized gain on the sale of the building is $75,000.

Step-by-step explanation:

Sal purchased the building for $200,000 but Sal only paid $50,000 of the amount and rest $150,000 was mortgage. He sold the building to Benno for $100,000 and benno also agreed to pay off his mortgage of $150,000, with his accured taxes of $5000. So from this Sal was able to gain $55,000 , as Benno paid of $150,000 of his purchase amount and also $5000 of taxes, and gave him $100,000 in cash , which means Sal cost was only $50,0000 and he received $100,000 from Benno , that means his gain is $50,000 here and we will also add $5000 because he didn't had to pay those, so his gain becomes $55,000 .

Now Sal also got saved from paying off the depreciation expenses of the building as now it would be paid by benno , so his gain would increase to-

$55,000 + $30,000

= $85,000

From this we will subtract the $10,000 which Sal had to pay for as selling expenses, therefore he will have a gain of -

$85,000 - $10,000

= $75,000