Question

Evita sells 2 pieces of land during the current year. She had used the first piece as a parking lot for her pet store. (She owns the store as a sole proprietor.) The land cost Evita $45,000, and she sells it for $28,000. The second piece is a building she had purchased as a speculative investment. Evita paid $45,000 for the lot and sells it for $28,000. Assume that Evita has no other dispositions during the year. Write a letter to Evita explaining the deductible loss from her two land transactions.

Answer 1

To Evita: The deductible loss from your two land transactions is $34,000. You can use this loss to offset any other taxable income you may have. If you have any further questions, feel free to ask.

Step-by-step explanation:

Dear Evita,

I hope this letter finds you well. I understand that you are seeking an explanation of the deductible loss from your two land transactions. Let me break it down for you:

The deductible loss is the amount by which the sales proceeds of an asset are less than its adjusted basis. In your case, you sold two pieces of land for less than what you paid for them, resulting in a deductible loss.

For the first piece of land, you had used it as a parking lot for your pet store. You initially purchased it for $45,000 and sold it for $28,000. The deductible loss from this transaction would be $45,000 - $28,000 = $17,000. This loss can be deducted from your taxable income, reducing the amount of tax you owe.

As for the second piece of land, which was a speculative investment, you also purchased it for $45,000 and sold it for $28,000. Again, the deductible loss would be $45,000 - $28,000 = $17,000.

Overall, the total deductible loss from both land transactions would be $17,000 + $17,000 = $34,000. You can use this loss to offset any other taxable income you may have.

I hope this explanation clarifies the deductible loss from your land transactions. If you have any further questions, please feel free to ask. Best of luck!