When her property was fully depreciated and was still encumbered by a mortgage of $6,000, Jamelle sells it subject to the mortgage to David for $1,000. What is Jamelle's realized gain or loss?
A)$ - 0 -
B)$1,000 gain
C)$5,000 gain
D)$6,000 gain
E)$7,000 gain

Question

Quizplus · Accepted Answer

Jamelle's realized gain is calculated by taking the sale price plus the mortgage assumed by the buyer, minus the adjusted basis of the property. Since the property is fully depreciated, the adjusted basis is $0. Therefore, the realized gain is $1,000 (sale price) + $6,000 (mortgage) - $0 (adjusted basis) = $7,000.

When Her Property Was Fully Depreciated and Was Still Encumbered