Question

Franco converted a building from personal to business use in May 2013 when the fair market value was $55,000. He purchased the building in July 2010 for $80,000. On December 15 of this year, Franco sells the building for $40,000. On the date of the sale, the accumulated depreciation on the building was $5,565. What is Franco’s recognized gain or loss on the sale?

Answer 1

Franco has a recognized loss of $34,435 on the sale of the building.

Step-by-step explanation:

Franco's recognized gain or loss on the sale of the building can be calculated using the formula:

Gain or Loss = Selling Price - Adjusted Basis

In this case, the selling price of the building is $40,000, and the adjusted basis can be calculated by subtracting the accumulated depreciation from the original cost of the building:
Adjusted Basis = Purchase Price - Accumulated Depreciation
Adjusted Basis = $80,000 - $5,565
Adjusted Basis = $74,435

Therefore, Franco's recognized gain or loss on the sale is:
Gain or Loss = $40,000 - $74,435
Gain or Loss = -$34,435

Since the result is negative, it means that Franco has a recognized loss of $34,435 on the sale of the building.