Question

Janice bought her house in 2008 for $395,000. since then, she has deducted $70,000 in depreciation associated with her home office and has spent $45,000 replacing all the old pipes and plumbing. she sells the house on july 1, 2017. her realtor charged $34,700 in commissions. prior to listing the house with the realtor, she spent $300 advertising in the local newspaper. don buys the house for $500,000 in cash and assumes her mortgage of $194,000. what is janice's adjusted basis at the date of the sale and the amount realized

Answer 1

At the time of sale, Janice's adjusted basis is $405,000 computed as follows: $405,000 = $395,000 (original price) + $45,000 (for replacing old pipes and plumbing) + $34,700 (realtor's commission) + $300 (advertising) - $70,000 (depreciated amount). The amount realized is $694,000 computed as: $694,000 = $500,000 (cash paid) + $194,000 (mortgage assumed by the buyer).

Answer 2

Janice's adjusted basis = $370,000

Janice's amount realized = $659,000

Step-by-step explanation:

Janice's adjusted basis = $395,000 (purchase price) - $70,000 (depreciation) + $45,000 (repairs) = $370,000

Janice's amount realized = $500,000 (cash) + $194,000 (mortgage) - $34,700 (realtor fee) - $300 (advertising expenses) = $659,000