Recognized Gain or Loss Calculation on Building and Land

Luke's Recognized Gain or Loss on the Building

Luke sold a building and the land on which the building sits to his wholly owned corporation, Studemont Corp., at fair market value. The fair market value of the building was determined to be $325,000; Luke built the building several years ago at a cost of $200,000. Luke had claimed $45,000 of depreciation expense on the building. To calculate the amount and character of Luke’s recognized gain or loss on the building, we would use the following formula: Amount of gain or loss on building = ($325,000 - $200,000) + $45,000 = $170,000 gain

Luke's Recognized Gain or Loss on the Land

The fair market value of the land was determined to be $210,000 at the time of the sale; Luke purchased the land many years ago for $130,000. To calculate the amount and character of Luke’s recognized gain or loss on the land, we would use the following formula: Amount of gain or loss on land = ($210,000 - $130,000) = $80,000 gain

a) What is the amount and character of Luke’s recognized gain or loss on the building? b) What is the amount and character of Luke’s recognized gain or loss on the land?

a. The amount and character of Luke’s recognized gain on the building is $170,000 b. The amount and character of Luke’s recognized gain on the land is $80,000

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