Question

Taxpayer, Inc. (a C corporation) bought a building several years ago to use as a warehouse in its business. It paid $20,000 in cash and assumed a $180,000 debt from the seller in connection with the purchase. Over the years, Taxpayer (properly) deducted $30,000 in straight line depreciation from the date the property was purchased through the date of sale. Taxpayer sold the warehouse in the current year. The buyer paid Taxpayer $50,000 in cash, took the property subject to the $180,000 debt, and also provided moving services to Taxpayer worth $7,000.What is Taxpayer, Inc.’s amount realized on the sale of the warehouse?

Answer 1

Amount paid in cash by Taxpayer, Inc. (TPI) = $20,000

Amount assumed as debt = $180,000

Total cost of building = $20,000 + $180,000 = $200,000

Note: Though depreciation is deducted from the value of property there was no outflow of cash and hence it is not taking into consideration for calculating the income from sale of property.

In the current year, the buyer paid to TPI = $50,000

the buyer need to pay the amount as debt = $180,000

moving services received by TPI = $7,000

total worth received = $50,000 + $180,000 + $7,000 = $237,000

Profit on sale of warehouse = selling price - purchase price

= $237,000 - $200,000 = $37,000

profit = $37,000