Question

franco converted a building from personal to business use in may 2020 when the fair market value was $67,500. he purchased the building in july 2017 for $108,000. on december 15 of this year, franco sells the building for $54,000. on the date of sale, the accumulated depreciation on the building is $6,815. what is franco's recognized gain or loss on the sale?

Answer 1

Franco recognizes a loss of $6,685 on the sale of his building, which is the difference between the adjusted basis after depreciation and the selling price.

Step-by-step explanation:

Franco's recognized loss on the sale of the building is calculated by comparing the adjusted basis of the property with the selling price, minus any depreciation. First, we determine the adjusted basis. Since the building was converted from personal to business use, the basis for depreciation is the lower of the cost or the fair market value at the time of conversion.

Here, that would be the fair market value of $67,500 as it is lower than the purchase price of $108,000. Next, we subtract the accumulated depreciation from this value. So, the adjusted basis equals $67,500 - $6,815 = $60,685. To calculate the recognized loss, subtract the selling price of $54,000 from the adjusted basis of $60,685. Thus, the recognized loss is $60,685 - $54,000 = $6,685.