Question

Hauswirth Corporation sold (or exchanged) a warehouse in year 0. Hauswirth bought the warehouse several years ago for $65,500 and it has claimed $25,400 of depreciation expense against the building. (Loss amounts should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable. Round your final answers to the nearest whole dollar amount.)

Required:
Assuming that Hauswirth receives $56,700 in cash for the warehouse, compute the amount and character of Hauswirth’s recognized gain or loss on the sale.
recognized
character of recognized gain/ loss
ordinary gain/ loss
1231 gain / loss

Answer 1

Hauswirth Corporation has a recognized loss of $16,600 on the sale of the warehouse. The character of the recognized loss depends on how long Hauswirth had held the warehouse.

Step-by-step explanation:

To calculate Hauswirth Corporation's recognized gain or loss on the sale of the warehouse, we need to determine the adjusted basis of the warehouse. The adjusted basis is the original cost of the warehouse minus any depreciation claimed. In this case, the adjusted basis is $65,500 - $25,400 = $40,100.

The recognized gain or loss is the difference between the selling price and the adjusted basis. If the selling price is higher than the adjusted basis, there is a recognized gain. If the selling price is lower, there is a recognized loss.

In this case, the selling price is $56,700. So the recognized gain or loss is $56,700 - $40,100 = $16,600. Since the selling price is lower than the adjusted basis, there is a recognized loss of $16,600.

The character of the recognized gain or loss depends on how long Hauswirth had held the warehouse. If it was held for more than a year before selling, it would be classified as a 1231 loss. If held for a year or less, it would be classified as an ordinary loss.