Problem 11-46 (LO 11-4) [The following information applies to the questions disp
ID: 2511951 • Letter: P
Question
Problem 11-46 (LO 11-4) [The following information applies to the questions displayed below.] 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 $450,000; Luke built the building several years ago at a cost of $367,500. Luke had claimed $66,500 of depreciation expense on the building. The fair market value of the land was determined to be $216,000 at the time of the sale; Luke purchased the land many years ago for $198,750 Problem 11-46 Part-a o. What is the amount and character of Luke's recognized gain or loss on the building? ountExplanation / Answer
SOLUTION
(A)
Luke must recognize ordinary income on the sale of the building under section1239 because (1) he sold it at a gain to a related person (his wholly owned corporation) and (2) the asset is a depreciable asset in the hands of the related person.
(B)
Section1239 is not applicable for the land because it is not depreciable to the buyer.
S.No. Description Amount ($) Explanation 1 Amount Realized 450,000 Given 2 Original Basis 367,500 Given 3 Accumulated Depreciation (66,500) Given 4. Adjusted Basis 301,000 2 + 3 Ordinary Gain / (Loss) Recognized 149,000 1 - 4