Question

Huey sold a warehouse with an original cost of $150,000 for $230,000 to a partnership where he owns a 51% partnership interest. The partnership will use the warehouse in the business. The warehouse had accumulated depreciation of $40,000. Assuming no other asset sales during the year, how will the gain be taxed to Huey?

Answer 1

The taxable gain=$2,700

Step-by-step explanation:

Step 1: Determine the value of the warehouse at sale

C.V=O.V-D

where;

C.V=current value

O.V=original value

D=accumulated depreciation

In our case;

C.V=unknown

O.V=$150,000

D=$40,000

replacing;

Current value=150,000-40,000=$110,000

Step 2: Determine gain/loss from the sale

gain/loss=Selling price-current value

where;

selling price=$230,000

current value=$110,000

replacing;

gain/loss=230,000-110,000=$120,000

Step 3: Determine the partnership interest amount

partnership interest amount=51% of 230,000=(51/100)×230,000=$117,300

Meaning $117,300 of his interest will be used to purchase the warehouse

Step 4: Huey's Gains

Net gains=120,000-117,300=$2,700

The taxable gain=$2,700