Karen purchased a rental property in 1995 for $45,000.In 2005 she traded this property and $10,000 in cash for a rental property valued at $105,000.In 2014,Karen sold that property for $135,000.What was her taxable income when she sold the property in 2014?

Question

Quizplus · Accepted Answer

To calculate Karen's taxable income, we need to first calculate her capital gain. The capital gain is calculated as the selling price minus the adjusted cost basis. The adjusted cost basis is the original purchase price plus any improvements made to the property, minus any depreciation taken on the property.

Adjusted cost basis = $45,000 + $10,000 (cash contribution) = $55,000

Capital gain = $135,000 - $55,000 = $80,000

Therefore, Karen's taxable income from the sale of the rental property is $80,000.

Karen Purchased a Rental Property in 1995 for $45,000