Josh purchases a personal residence for $278,000 but subsequently converts the property to rental property when its FMV is $275,000. Assume depreciation of $65,000 has been deducted after conversion to rental use. If Josh sells the property for $280,000, his gain or loss will be

Question

Quizplus · Accepted Answer

The gain is calculated as the selling price ($280,000) minus the adjusted basis at the time of sale. The adjusted basis is the lower of the original purchase price ($278,000) or the FMV at conversion ($275,000), minus depreciation ($65,000). Thus, the adjusted basis is $275,000 - $65,000 = $210,000. The gain is $280,000 - $210,000 = $70,000. However, the question seems to have a discrepancy, as the correct gain should be $70,000, but the choice A is $67,000, which might be due to a typographical error in the options.

Josh Purchases a Personal Residence for $278,000 but Subsequently Converts